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FHA Loans

Relaxed student loan guidelines makes qualifying easier

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Student Loans and Mortgage Approval. What are the guidelines?

Minneapolis, MN: Student loan debt is at an all time high, and has been noted as a contributing factor to why may people have been unable to purchase a home, especially first time home buyers.

Recent changes to Fannie Mae and Freddie Mac guidelines have made it easier for some, but not all with student loan debt to still qualify for home mortgage loans.

Fannie Mae and Freddie Mac do not do home loans. Rather they buy loans from lenders after that fact. Both Fannie and Freddie have set underwriting guidelines that if lenders follow, makes the selling of loans to Fannie Mae and Freddie Mac much easier.  While the number moves, at any given time, Fannie Mae and Freddie Mac control +/- about 60% of all home loans.

Student Loans. How do lenders calculate?

Student loans can be in active repayment, some sort of reduced repayment (which is typically an income based repayment), or completely deferred.  While a student loan may be deferred for the next year or two, your mortgage loan is typically a 30-year loan. It only makes sense that lenders take current or future student loan payments into consideration when calculating debt ratios and affordability.
To avoid confusion, I’ll just talk about current guidelines for how lenders currently deal with your student loan debt for debt-to-income ratio purposes.
These guidelines are current as of this article (Dec 1, 2017 (updated)).

FHA Loans:

FHA loans must use the greater of 1% of the outstanding balance, or the payment listed on the credit report, unless you can document the payment is a fully amortizing payment. No income based repayment, graduated payments, or interest only payments allowed.

Fannie Mae Loans:

For deferred loans, must use 1% of the outstanding balance. For loans currently in repayment, use the payment listed on the credit report. If payment is listed as $0.00, but $0.00 is an active income based repayment, we must verify with the student loan company that $0.00 is the income based repayment.

Freddie Mac Loans:

For loans in repayment, use the amount listed on the credit report, or at least .50% (1/2%) of the outstanding balance, whichever is greater.
For deferred loans, must use the amount listed on the credit report, or 1% of the outstanding balance as reported on the credit report.

USDA Rural Housing Loans:

For USDA loans, if the loan is deferred, income based payment, graduated payment, or interest only payment, must use the greater of 1% of the outstanding balance, or the amount listed on the credit report.

VA Home Loans:

For VA loans, if payment is deferred at least 12 months past the loan closing date, no payment need be listed.
If payment will begin within 12 months of closing, use the payment calculated based on:
  a) 5% of the outstanding balance divided by 12
  b) The payment listed on the credit report if the payment is higher than calculated under (a).
  or
If payment on credit report is less than (a), a letter, dated within the last 60-days directly from the student loan company that reflects the actual loan terms and payment information is required to use the smaller payment.

More people with student loans now qualify

These updated guidelines primarily help those currently in repayment, but with income based, graduated payment, and interest only payment student loans obtain conventional loans.
 Regardless of your student loan status, I always suggest that people never assume you can’t buy a home.  Always talk with a professional licensed Mortgage Loan Officer to get the facts regarding any financing options.  I offer all this loan option and more for properties in Minnesota, Wisconsin, Iowa, North Dakota, South Dakota and can be reached at (651) 552-3681, or www.MortgagesUnlimited.biz

Why do I need mortgage insurance??

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Why do I need mortgage insurance?

When buying a home, and getting a home loan, being approved or not all comes down to risk. If the mortgage company thinks you are a good risk, you get the loan. If you are too risky, you get denied. Pretty simple concept.

A good example of this concept is down payment size.  If you put at least 20% down, you are considered a good risk. Put less than 20% down, you are high risk. Needless to say, not everyone can put 20% or more down payment.

To minimize the lenders risk on small down payment loans, but yet allow for these same small and more affordable down payments, a tool called mortgage insurance, commonly referred to as PMI, or private mortgage insurance is available.

The insurance policy you are required to obtain and pay for as part of your monthly mortgage payment essentially provides protection to the lender in case you default on the loan, and covers the lender for the amount between 20% down and what you actually put down.

The cost of the mortgage insurance depends on multiple factors, but primarily down payment size, credit scores, and loan type.

The smaller your down payment, the higher the mortgage insurance costs. The lower your credit score, the higher the costs.  For example, A client with 10% down and an 800 credit score on a 30-yr fixed loan might pay about $30 a month per $100,000 loan amount for mortgage insurance. The same 10% down, but a client with just a 640 credit score might pay as much as $105 per month per $100,000 loan.

Contact your loan officer for exact monthly costs for your individual situation and down payment size, as this article covers basic and most common situations, but does not encompass every possible situation.

Typicaly standard PMI will automatically fall off your loan once you reach 78% of the original loan amount with no interaction from the homeowner. It is simply automatic.

You can request to have mortgage insurance removed from your loan once you believe you are at 80% of the original loan. The 80% mark can be based on a combination of paying down the loan, and today’s appraised value.  For example, you put 5% down when you bought the house, you’ve paid down through payments another 5%, and the home has appreciated 14% since you bought it.  That would put you ate 76% loan-to-value. So contact your lender on their proceedure to have mortgage insurance dropped.

Must Deal With Mortgage Insurance

If you are putting down less than 20%, you MUST deal with mortgage insurance somehow. Other than monthly mortgage insurance, lenders can also offer more creative options. The most popular is known as ‘lender paid mortgage insurance’, where the lender increases your interest rate, and uses the extra money to buy mortgage insurance. You still have it, but it doesn’t show as a monthly cost.

The next is known as ‘single premium’ insurance. Under this option, you pay a one time lump sum amount up-front at closing equal to 3-years of monthly mortgage insurance.

The last option, is getting two loans. An 80% first mortgage, and a second mortgage to cover the difference from what you have for down payment. This is a viable option primarily for high credit, low risk clients, and for jumbo loans over $424,100.

While these options may sound enticing, for most people, balancing up-front costs, long-term versus short-term costs, and overall benefits based on individual situations can become a mind numbing challenge.  Suffice to say the vast majority of people go with standard monthly mortgage insurance for a reason.

FHA Loan Mortgage Insurance

FHA loans also have mortgage insurance, but this insurance is significantly different from conventional loan mortgage insurance.

Most people using FHA loans put the minimum down payment of 3.50%, and take a 30-yr fixed loan. Most FHA mortgage insurance is the same for everyone regardless of down payment size or credit score.  For small down payments, this is roughly $85 per month per $100,000 loan amount.Next, FHA mortgage insurance for small down payments is called ‘Life of Loan’ insurance, which means regardless of future loan-to-value, appreciation, or what you’ve paid down, FHA mortgage insurance never goes away. The only way to remove it is to refinace the loan.

Another item with FHA loans, is that regardless of down payment size, ALL FHA loans will have insurance. So contact your loan officer for exact monthly costs for your individual FHA insurance, especially if you are putting more than 10% down or picking a 15-year loan.

PMI is Not Homeowners Insurance

Mortgage insurance often times gets confused with home owners insurance.  PMI protects the lender from default, while home owners insurance protects the owner for items like fire, storm damage, theft, etc.

VA Loans Have NO Mortgage Insurance

If you are active or former U.S. military, you have a great benefit in a VA Home Loan. Most people know VA loans generally do NOT require a down payment, they also have NO monthly mortgage insurance.  This can be a huge monthly savings over other loans.

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Author Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Cambria Mortgage. He was named the 2014 Minnesota Loan Officer of the Year, and Top 300 Loan Officers in the Nation for 2010, 2015, 2016.  He provides Home Mortgage Loans in MN, WI, IA, ND, SD. He can be reached at (651) 552-3681. NMLS 274132.

Is Trump good for home loans?

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Is President Trump good for home loans?

Minneapolis, MN: Its only been two weeks, but clearly the new Trump Administration is driving a different road from the past administration. Only time will tell what this all means for real estate and home mortgage loans, but here are a few observations, most relating to a reduction in regulations.

After the housing collapse, legislators and regulators came down hard on the mortgage industry under the false belief that if you could fog a mirror, you automatically got a loan.  While guidelines were looser, and third party verification of documents supplied by home buyer were lax, NO LENDER ‘knowingly‘ let the french fry guy at McDonald’s buy a million dollar home.

Were there a few bad players? Yes, But think of it more as it was easy to beat the system, as opposed to everyone in the mortgage world was a crook.

The Frank-Dodd financial reform laws, and the creation of the Consumer Financial Protection Bureau (CFPB) put the hammer down on many industries, not just mortgages. Of all the new regulations, only a few actually made a difference and make sense. The rest have cause home buyer costs to rise dramatically, added huge paperwork and delays to closing, and ultimately left many good people unable to buy homes because of unintended consequences.

It is expected that the Trump administration will go after many of the Frank-Dodd financial reform rules, and seek to reign in the CFPB, resulting in fewer rules, regulations, and paperwork. Meaning lower costs for home buyers, quicker closings, and less hassle to get a home mortgage loan.

A prime example is the CFPB designed a new ‘Loan Estimate‘, which replaced the ‘new’ Good Faith Estimate, which replaced the old Good Faith Estimate that existed since 1972. Today my clients are more confused than ever over the document and disclosures.

A second example is Loan Officers themselves. The rules put into place after the crash REQUIRE non-bank Loan Officers to go to school, pass difficult state and federal testing, and have mandatory continuing education. Sounds great, but Loan Officers at depository lenders (banks, credit unions, and lenders owned by banks or credit unions) DO NOT have to pass the same requirements of the S.A.F.E. Act. Don’t they all do the same thing? Why to bank Loan Officers not have to go to school, pass federal testing, or meet the same educational requirements?

Another example is that over the past 10-years, and especially the past 5-years, many lenders have pulled away from writing FHA loans. While not just for first time buyers, those are the people who primary use FHA loans. This was done because the Obama administration went after lenders from every angle under the False Claims Act for any minor error in FHA underwriting. Failing to cross even the most minor T, or dot the smallest I could have, and did,  leave lenders with huge multi-million dollar settlements paid to the government.

I’m all for slapping the hands of people doing blatantly wrong things. But lenders are not stupid. If the government is going to come after you for minor items, why bother.  It isn’t worth it. Those still offering FHA loans charge higher rates than needed to new buyers to offset anticipated government lawsuits. Someone has to pay those lawsuits, and it has simply been pass on to the consumer.

It is expected the Trump administration will have the CFPB and the Justice Department back off of their overzealous pursuit of lenders.

A smart balance of less unnecessary regulation, less paperwork, and a positive attitude towards business should be good for mortgage loans, the financial markets, home owners, and the country in general. It is way too early to tell, but lets all pray the county goes in a good direction.

FHA mortgage insurance lowered

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FHA lowers monthly mortgage insurance

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UPDATE to this UPDATE:

The reduction in FHA mortgage Insurance has been (at least) temporarily paused before ever actually going into effect.

The FHA mortgage insurance rate reduction came as a giant unanticipated surprise to all of us in the mortgage world. I guess I should have figured something was up, as it appears the reduction was part of Washington’s political games.

The outgoing Obama administration people made the surprise reduction announcement with only days remaining in office. As soon as the Trump administration was sworn in, they immediately put the reduction on hold, stating it was irresponsible, and needed to be evaluated. This allowed the former administration to run around claiming how horrible the new administration was.  Errr….

Personally, I think it is a bunch of crap that these people play with home owners, the mortgage industry, and the real estate industry, regardless of what side of the political fence you stand.

—————- ORIGINAL ARTICLE ——–

Minneapolis, MN: HUD/FHA has announced that the required monthly FHA mortgage insurance costs are dropping with any new FHA loan closing January 27, 2017 and after.fha loans, fha update, fha mortgage insurance

For most FHA home buyers, this will mean a drop from .85% monthly, to just .60% monthly.

On a $200,000 loan, that means a monthly savings of $41.00 a month!

Combine the new lower FHA mortgage insurance, with the fact that FHA interest rates roughly 1/2% LOWER than conforming loans, and it is no wonder our FHA loans are so popular!

How to calculate FHA monthly mortgage insurance:

Take the loan amount times the insurance factor, then divide by 12
Example: Loan amount X .0060 / 12 = $ Monthly MI
$200,000 X .0060 / 12 = $100 a month

Visit my FHA LOAN ​page for more details, or dial 651-552-3681

FHA Loans, FHA Lender in MN, WI, SD

 

Low down payment, no down payment loan options for 2017

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Minneapolis, MN:  Just 10-years ago, 30-year fixed rates were 6.125%, and the real estate market was hot. With rising interest rates, 2017 may be a bit more challenging for home buyers. But the biggest challenge for most people who wish to buy a home is down payment.

You do not need 20% down payment to buy a home! I repeat, you do not need 20%. This large down payment myth has been around forever, but it simply isn’t true for the vast majority of people buying their first primary residence. There are many program that allow for no down payment, or low down payment. Some jumbo loans buyers (loans over $424,100 in most parts of the county), as will people buying investment properties will usually need a large down payment. But for the rest of us, there are many low down payment, no down payment loan options for 2017.

First Time home buyers, Down Payment Assistance

First Time Home Buyer programs:

The term first time home buyer program covers a wide net of potential programs and options. To be a first time home buyer, you simply must not have owned a home in the past three-years. If you owned a home in the past, but it has been longer than three-years, you are a first time home buyer again. Some options allow for lower rates, cheaper mortgage insurance, and even down payment assistance. Most come with additional strings attached, like household income requirements, lower debt to income requirements, and that you must take first time home buyer education classes.

FHA Loans:

FHA backed loans are very popular, and only require a small 3.50% down payment. The down payment can be your own money (checking/savings/retirement), a gift from a family member, or can come from a down payment assistance program. FHA loans are more forgiving than other loans, for example allowing just a two-year waiting period if you have a previous bankruptcy, and a three-year waiting period after a previous foreclosure. Maximum loan limits apply based on the medium income of the county the property will be located.  Check FHA Loan Limits

Conventional 97 Loans:

Both Fannie Mae and Freddie Mac offer a 3% down payment program.  The down payment can be your own money (checking/savings/retirement), or a gift from a family member. This is a great program, especially for those with higher credit scores, or homes that need a little TLC that might not pass FHA loan inspections.

Conventional HomeReady™ Loans:

Fannie Mae offers an additional 3% down loan called HomeReady for first time home buyers. You need to take a home buyer education class, but you’ll be rewarded with lower interest rates, and lower mortgage insurance than the standard 3% down conventional loan.

Conventional 95 Loans:

Both Fannie Mae and Freddie Mac offer a basic 5% down payment program.  This is your everyday, plain vanilla mortgage loan available to everyone.

VA Loans (100% financing):

Available for active or retired U.S. Military personal, the VA loan is truly one of the best benefits this country offers for your service. The VA loan is a no down payment program, and also has no mortgage insurance whatsoever. This is a huge savings per month over any other low or no down payment loan. Closing costs can be rolled into the loan, making for a home purchase, that for most people, is about as close to zero money out of pocket to buy a home as you’ll ever get.

USDA Rural Housing (100% financing):

Available to those wishing to buy in more rural areas of the country, the USDA Rural Development loan does not require a down payment. While the loan does have mortgage insurance, the cost is very low compared to other loans.  You need to meet household income, and property location requirements.

Down Payment Assistance:

Down payment assistance comes in many different flavors from neighbors, city, county, and even state programs. Welcome first time home buyers. Apply onlineGenerally these are in the form of a loan that needs to eventually be paid back, but there are a very small number that are actually forgiven if you live in the home a set period (like 9-years or longer). The assistance loan can be combined with a standard loan, like an FHA loan, to be used for down payment. Household income, and property location are common requirements.

The Bottom Line:

If want to own your own home, you have OK or better credit, a stable income, and at least a little money in the bank, by all means, you should apply for a home loan. Your Loan Officer will review your loan application, then go over the various program to see what programs you qualify for, how much house you can buy, what the payments might look like, and finally, how much cash you may, or may not need to put it all together.

Best case, you’ll be in your own home sooner than you thought.  Worse case, your Loan Officer will go over what you need to do to be in position to buy a home in the near future.  Either way, a win win for you.

Don’t believe the hype – Millennials can still buy homes

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Millennials can, and still want to buy homes.

While it is true the American dream of home ownership is harder to achieve than in the past, it isn’t impossible. Young adults, more than ever in the past may be delaying home ownership because of student loan debt, and fear of the stability of their young careers. But they are still buying homes, just a few years later in life than in the past.

real1According to data from Zillow, in the 1970’s, first time home buyers on average had rented for just 2.6 years prior to buying a home, and was about 30-years old.  Today, the average first time home buyer has rented for 6-years prior to buying a home, and is three years older (33-years old).

The same data shows that in the early 1970’s, the average first time home buyer bought a home with a price 1.7 times their household income.  Today, that first home costs 2.6 times their yearly income.

Clearly this data shows that it is tougher for first time buyers to save for down payment, and to afford a home. At the same time, this lines up with other delayed aspects of adulthood from years past, including getting married later in life, starting families later in life, and having fewer children.

Just like generations past, once people start having kids, they start looking for homes to raise those kids, especially if they feel secure in their young job careers. But things have changed, many people years ago could count on right out of high school having a job they could start and stay until retirement with good benefits.  That just isn’t the case today. Another survey showed the average new buyer spent 4.5 years in their job field, and were at their current job for 3-years.

Most new home buyers still save their own money for down payment, which has become a bit harder with rising home prices, and high rents making it harder to save for a down payment, but the long held tradition of down payment help from Mom and Dad is still alive and well – and a very popular option.

Apply Online

Low mortgage rates, low down payment loans like the 3.50% down payment FHA loan, and the 3% down payment conventional loan, combined with down payment assistance programs significantly close the gap needed to buy a home.

The bottom line is there is a continued strong desire to buy among millennials.  It is just that the timelines to buy that home appear to have been pushed back a few years from generations past.

If you feel you are ready to buy in MN, WI, or SD – we can help.  Just click here to apply online.

MN first time home buyer programs

FHA flipping rule – 90-day flip waiver eliminated

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Bought a house and want to flip it?

The temporary waiver of FHA’s regulation that prohibits the use of new FHA financing to purchase single family properties that are being resold within 90 days of the previous acquisition expired on December 31, 2014.

What this means is that NO FHA lender can accept any purchase agreement dated less than 90-days from the last RECORDED title transfers,

UNLESS:

  • Properties acquired by an employer or relocation agency in connection with the relocation of an employee;
  • Re-sales by HUD itself under its Real Estate Owned (REO) program;
  • Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies;
  • Sales or properties by nonprofits approved to purchase HUD-owned single family properties at a discount with resale restrictions;
  • Sales of properties that are acquired by the seller by inheritance;
  • Sales of properties by state and federally-chartered financial institutions and government sponsored enterprises (Fannie Mae, Freddie Mac is the owner)
  • Sales of properties by local and state government agencies; and
  • Sales of properties within Presidentially Declared Disaster Areas.

So if you bought a home, fixed it up, and now want to sell it, understand that NO FHA buyer is able to enter into a purchase agreement until YOU have owned the house for at least 90-days.

They can not even sign a purchase agreement until day 91 of YOUR ownership.This isn’t a big deal in many cases, as it take a good 3-months to turn around many fixer-uppers, but just be aware of the rule.

FHA Mortgage Insurance Lowered!

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FHA will cut its mortgage insurance premiums to 0.85 percent, a 0.5 percentage point reduction (down from 1.35%)
President Obama was expected to make the announcement on Thursday in a scheduled speech on the housing market, but the White House made it official following initial media reports.
FHA loans had seen significantly increased costs for in PMI (mortgage insurance) after the housing bust. The increased cost seriously hampered housing, keeping many out of the housing market. The reduction in costs should help creditworthy first time homebuyers re-enter the housing market.
Full details to follow as they come out, but this is great news that I wanted to get out ASAP.

 

NEW FHA collection, charge-off, and judgement rules to make loans harder

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updateIn a recent announcement (FHA Mortgagee Letter 2013-25) ,  HUD said that while they will continue with their basic rule that most  unpaid collection accounts DO NOT need to be paid off in order to obtain an FHA loan,  they now WILL require that lenders consider how a creditor’s efforts to collect the account can impact the borrower’s ability to repay the loan.

When ANY ONE, OR COMBINATION of unpaid collection accounts equal $2,000 or more, the lender now needs to factor in monthly payments of 5 percent (5%) of the outstanding balance for the account into the debt-to-income ratio. If payment arrangements were made with the creditor, then that payment must be used. This is going to be a major deal breaker for many applicants.

Collection accounts for non-purchasing spouses need to also be considered in community property states (like Wisconsin).  Nothing needs to be done if the aggregate balance is under $2,000.

This additional debt-to-income requirement is sure to hurt many applicants.

Any medical accounts many be  excluded from the requirement.

Impacted loans are those that have case numbers assigned on or after Oct. 15, 2013.

On disputed accounts, manual underwriting is required when the  total is at least $1,000.  Lenders must analyze whether collection accounts or judgments were a result of disregard for financial obligations, an inability to manage debt or extenuating circumstances.

In any event, the borrower needs to write an explanation and provide supporting documentation for each account.

All of this is just more reason to make sure you are working with an experience LICENSED Loan Officer, not an unlicensed bank application clerk.

FHA new Foreclosure forgiveness policy – Not what you think. Read why

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FHA foreclosure guidelinesHow long after foreclosure for a new FHA loan?

Recently FHA announced in mortgage letter 2013-26 the ability to FOREGO the current three year waiting period for previous Foreclosures and Short Sales before you can qualify for an FHA Loan if the borrower had an ECONOMIC EVENT that created a hardship.

It has been brought to my attention that many real estate agents are now advertising this, WITHOUT GIVING THE FULL STORY.

Borrowers MUST MEET VERY STRINGENT guidelines in order to qualify for this EXTENUATING CIRCUMSTANCE.

Here is the link to the actual Mortgagee letter for your reference.  Please read the FHA foreclosure guidelines so you understand what is required.

But there is more…  Just because FHA indicates they may insure a loan meeting these guidelines, you need to understand that FHA DOES NOT DO LOANS.  Lenders do loans, and you will still need to find a lender willing to offer loans under these new guidelines.

My experience tells me that very few lenders will jump on board to offer this product, so be sure to cross your T’s and dot your I’s before you get too excited about suddenly being about to get an FHA Home Loan with a recent foreclosure or short-sale.

FHA Loans versus Conventional Mortgage Loans

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Many folks are confused when it comes to loan options. What type of loan, FHA Loan, VA Loan, or maybe a Conforming Conventional loan? What about fixed rates versus  adjustable loans?

worth_balanceHere are some important differences between FHA Loans and Conforming Conventional Loans (Meaning Fannie Mae or Freddie Mac)

Consider FHA:

1. FHA charges a 1.75% upfront fee known as MIP (Mortgage Insurance Premium) (which is added to your loan balance)
2. FHA charges Monthly Mortgage Insurance of 1.35% annual (divided by 12 monthly payments) on a 30-yr loan with less than 10% down. To calculate it, take your loan amount times 1.35%, then divide by 12. This number is what is added to your loan payment
3. FHA Mortgage insurance can never be removed from the loan if you put down less than 10%.  This is change from the old rules as of 2013
4. FHA technically allows a credit score down to 580 with just 3.5% down, but most lender will require at least a 620 or higher score
5. With FHA, there is no real difference in the interest rate from borrowers with a low 640 score to borrowers with a 800 score.
6. While rates can change, currently FHA rates are usually a little lower than conforming mortgage rates.

Consider Conforming Conventional:

1. No upfront Mortgage Insurance Premium  charge
2. Monthly PMI is lower than FHA PMI.  The cost does vary by credit score and down payment. The more down payment, the cheaper the PMI.
3. PMI can be avoided when the borrower puts 20% or more as down payment
4. Conventional PMI can be asked to be removed at 80% loan-to-value. This can be a combination of paying down the loan, or increased value. PMI will automatically go away once your reach 78% loan-to-value though payments alone. You must have made at least 24 mortgage payments before this can happen.
6. Most conventional lenders require a 660 minimum credit score., and a few will go to as low as a 620 score
7. Conforming conventional loan interest rates vary greatly by credit score in 20 point increments. Someone with a 660 credit score could be paying as much as 1/2% higher interest rate than someone with a 760 credit score.

Although this quick summary shows some of the key differences between FHA and Conventional financing, there could be other considerations which will make one loan product more beneficial to you than the other..

It can be overwhelming.  That is why is is so important to deal with an experienced, and licensed mortgage professional – not just the unlicensed application taker at the bank or credit union.  Sadly, around 80% of  “Loan Officers” are mere application takers, with little to no qualifications to consult or properly advise a potential first time home buyer.  Be sure to only work with an actual licensed loan officer.

LEARN HOW to determine if your Loan Officer is Licensed, or simply an application clerk.

 

20% down NOT needed to buy a home in Minnesota

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Minnesota Down Payment mortgage loansSt Paul, MN:   Question.  How much money do you think you need to put down to buy a home?

If you answered anything higher than ZERO, your answer is wrong!

Would it surprise you to learn that most people can get a mortgage with a great rate with just 3.5% down, and in some cases, zero down?  For most people, it is about the same amount of money you would spend on the first month, last month, and damage deposit on a rental property… but now, it is your home.

For some strange reason, the myth you need a huge down payment persists.  It simply isn’t true, yet I hear it all the time. I think it is because we hear it on TV.  I know I have. This is mostly from the talking heads on either coast. Many of those areas are what is known as “high cost” locations.  Anytime you go over $417,000 – you are now a jumbo loan, and jumbo loans are typically 20% down.  But for the rest of us…  Heck no, just 3.5% down!

  • FHA Loans are very popular, and only require 3.5% down
  • Good credit conventional loans only require 5% down
  • VA loans are zero down
  • USDA rural housing loans, for rural parts of the country, are zero down
  • Community programs can many times be used for your down payment to effectively get you zero down

Don’t let misinformation derail your dream of home ownership. Contact a local licensed mortgage professional to get pre-approved today.  Once approved, contact a great Real Estate Agent to find your dream home!

 

New FHA Rules – 3 major changes coming soon

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Minneapolis, MN: If you are a first-time home buyer, you may already be leaning towards an FHA-backed mortgage to finance your Minnesota or Wisconsin home. Recently, the Federal Housing Administration announced changes to their mortgage guidelines, which are being made to stem the losses from all the foreclosures the past few years.

updateFHA does not provide loans, rather FHA is a government entity that insures mortgage loans made by banks and non bank lenders. Needless to say, if a lender can get an FHA guarantee on a portion of a loan, they are much more willing to provide a loan to someone.

Without the FHA, home buying would be a bit tougher for many home buyers buyers who cannot meet the slightly higher down payment and credit score requirements of a conventional loan. After the collapse of subprime lending in 2008, and the tightening of credit that followed, FHA-backed mortgages became the only game in town for many first-time home buyers.

FHA guidelines are a little more forgiving when it comes to credit history, making it the only practical option for some  home buyers who had a prior bankruptcy, foreclosure, or short sale in the past few years.

Here are 3 major FHA rule changes slated for 2013, and how they may affect you:

1. All FHA loans initially require mortgage insurance.  Just like conventional loans, mortgage insurance could be dropped below 80% loan-to-value.  After June 3rd 2013, this is no longer the case. Mortgage insurance on FHA loans will be on your mortgage payments for the life of the loan.

2. The cost of monthly mortgage premiums is going up slightly on April1, 2013. While it is  a relatively small amount; it would add an extra $20 a month to a $200,000 mortgage.  This will only effect new loans.

3. Few lenders allow for score below 640, but for those lender who do offer very poor credit score FHA loans (580-620 range) home buyers will face stricter debt-to-income ratios in 2013. In other words, the less debt you have, the better.

The good news is, these changes shouldn’t derail anyone’s plans to buy a home in MN, WI, or the rest of the country. Even with the new changes in 2013, FHA-backed mortgages remain attractive for many at least for the first 10-years or so of home ownership.

Finally, if you are buying a home, remember to get pre-approved by a local Minnesota or Wisconsin mortgage lender first…  You need to know what loan programs you qualify for, down payment options, FHA mortgage interest rates and how they will effect you, and an acceptable price search range to be looking at BEFORE you spend any time with a Realtor.

Popular FHA Loans to become more expensive

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updateMinneapolis, MN: The popular FHA loans, requiring just 3.5% down payment are about to become more expensive.

Starting on April 1, 2013, the mortgage insurance premium will go up by .1% to 1.35%. While this is small, this is the most expensive mortgage insurance of all loans available in the market! This is also on top of the more than doubling of FHA mortgage insurance two-years ago. These staggering increases in mortgage insurance is highly expected to continue the decreased use of FHA loans.

To add insult to injury, on June 3, 2013, FHA mortgage insurance, which currently goes away when your loan-to-value drops to 78%, will be changed to “life of loan”.  Another words, it will NEVER go away, regardless of down payment or loan-to-value. This will only be one NEW loans. Existing FHA loans will not change.

Example: Purchase Price $175,000 3.5% down payment at 4% mortgage rate on 30yr.  Currently, that mortgage insurance would end at 78%, and cost someone $20,838.  Under the new rule, the mortgage insurance would be on the loan forever, and cost someone $42,447 – MORE THAN DOUBLE the cost.

There are buyers that qualify on income and credit who may not have the necessary additional down payment required for the 5%, or 10% down conventional loans. The 3.5% FHA program has provided a great vehicle to get into a home with a minimum amount of cash.

The average time for FHA mortgage insurance to go away is about 9.5 years. So for homeowners who anticipate staying in their home for ten years or less, the new changes might not have much financial impact. However, homeowners who expect to be in their home longer should seriously consider going with a 5% down conventional loan if at all possible.

For buyers currently in the market, you can avoid these increases by acting now.

Mortgage Rates remain near record lows – for week ending Dec 7, 2012

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Mortgage Rates Ease Slightly, Remain Near Record Lows

Minneapolis, MN: Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates easing slightly and remaining near record lows to keep homebuyer affordability high and attractive to those looking to refinance.

News Facts

  • 30-year fixed-rate mortgages (FRM) averaged 3.32 percent with an average 0.7 point for the week ending December 13, 2012, down from last week when it averaged 3.34 percent. Last year at this time, the 30-year FRM averaged 3.94 percent.
  • 15-year fixed rate mortgages this week averaged 2.66 percent with an average 0.6 point, down from last week when it averaged 2.67 percent. A year ago at this time, the 15-year FRM averaged 3.21 percent.
  • 5-year adjustable rate mortgages (ARM) averaged 2.70 percent this week with an average 0.6 point, up from last week when it averaged 2.69 percent. A year ago, the 5-year ARM averaged 2.86 percent.

FHA Loans – FHA STREAMLINE Loan Interest Rates LOWER

Quotes
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

“Mortgage rates held relatively steady following the November employment report. Although 146,000 jobs were created, above the market consensus forecast of 85,000, revisions subtracted 49,000 workers over the September and October period. The unemployment rate fell from 7.9 to 7.7 percent. However, in its December 12 monetary policy statement, the Federal Reserve (Fed) noted that this rate remains elevated and modified the statement to tie any increases to its target rate to the unemployment rate falling below 6.5 percent. The latest Fed central-tendency forecast is for unemployment to be between 7.4 and 7.7 percent in the fourth quarter of 2013 and between 6.8 and 7.3 percent by late 2014.”

Freddie Mac’s survey is the average of loans bought from lenders * last week, including discount points. Applicants must pay all closing costs at these rates. No cost loan rates higher.

Follow this link to view today’s best MN and WI mortgage interest rates.