FHA Home Loans – Meeting The Challenge?


During the most recent three years, FHA-Insured mortgages in terms of market share increased from less than 20% to the latest figures putting it over 50%, a quick and explosive increase which began at the end of first quarter in 2007 up to and including the first quarter of 2010. In the absence of sub-prime loans which as we now know were based on very imprudent lending practices, FHA loans are now heavily relied upon to finance the bulk of the nation’s residential housing financing needs.

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Although the market continues to be sluggish during this “non-recovery-recovery” economic period, the fact is that there are still homes being sold and home loans being originated, processed and closed; and the loans most often utilized by lenders and buyers alike are FHA home loans. The demand for home loans has increased slightly from this time last year and the longer these increases continue, the more demand for FHA loans will increase proportionately. The question is, will the FHA be able to meet that demand.

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You may ask, what happened to the traditional conventional loan? And you would be correct in the assumption that conventional home loans are readily available also as a means of providing home loans for meeting increasing demands, except that the reason subprime mortgages gain popularity in the first place was due to the rigid guidelines under which conventional loans were underwritten as well as the out-of-pocket (cash) requirements home buyers had to meet in order to get a conventional home loan. Those guidelines, although modified in recent years, are still rather prohibitive (20% down payment without PMI, 720-760 credit score, reduces to a full 10% a home buyers gross monthly income for “housing expense ratio – PITI”).


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While a home purchaser has to invest a very huge amount of money to support and maintain the home and protect his/her investment – although these days there are those who will dispute the investment idea – over the long term, many proponents of affordable housing, including some mortgage lenders, belieeve that as long as a borrower is steadily employed and has been for previous two consecutive years; can show a history of managing credit responsibly; and have save at least 3.5% of his/her own funds for down payment, s/he ought to be able to own a home.

For many years the FHA shared that view, but what plagued FHA home loans during the two decades from 1980 to 2000 was the “maximum loan amounts” they were willing to insure, which is the reason PMI and Subprime companies gained prominence in the mortgage markets in the first place. PMI (private mortgage insurance) served as a bridge between the 20% down payment required to be qualified for conventional loans, and the 2.25% to 3.5% (most recent) needed to qualify for a FHA home loan. PMI loans, as extensions of the conventional loans were processed and underwritten using the same loan maximums that existed on the conventional loans and therefore garnered a substantial market share while FHA loans could not be approved and closed due to the same maximum loan restrictions, or low appraisal, or expensive repair work they demanded the home seller to complete as a condition of closing the sale of his/her home. Oh did that infuriate those poor home sellers. The problem today is different.

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Today there is more of a demand for FHA home loans than at any time during the last quarter century and the question is whether or not that demand will or can be met by today’s FHA. It is common knowledge by now that FHA (Federal Housing Administration) is a government agency under the HUD (Housing and Urban Development) umbrella and as such must adhere to, promulgate and uphold laws which govern the lending process, including FCRA, RESPA and most recently S.A.F.E. just to name just a few.

Having said that, it is reasonable to assume that as the federal government goes, so goes FHA, therefore the question regarding meeting the increasing demands of the residential home loan industry is not an easy one to answer since the government must first be restored to 100% economic health. If I had to bet on FHA home loans meeting that demand though, my money would be place on the FHA meeting the demand and remaining a viable force in the home loans market for many years to come – perhaps another 75.

A message to our readers:

Thank you for visiting REAMS. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Occasionally, we’ll post content from our other sites based entirely on its value to you. Please let us know what you think in the comments section. Thanks and God Bless! Javeton

For more about 203k, please visit the HUD website.

humor
If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?

When is it a Mistake to Re-finance?

Many homeowners make the mistake of thinking re-financing is always a viable option. However, this is not true and homeowners can actually make a significant financial mistake by re-financing at an inopportune time. There are a couple of classic examples of when re-financing is a mistake. One is when the homeowner does not stay in the property long enough to recoup the cost of re-financing and the second is when the homeowner has a credit score which has dropped since the original mortgage loan. another examples is when the interest rate has not dropped enough to offset the closing costs associated with re-financing.

Recouping the Closing Costs

In determining whether or not re-financing is worthwhile the homeowner should determine how long they would have to retain the property to recoup the closing costs. This is significant especially in the case where the homeowner intends to sell the property within afew years of obtainging the loan. There are re-financing calculators readily available which will provide a homeowner with the amount of time they will have to retain the property to make re-financing worthwhile. These calculators require the user to input specific information such as, balance of the existing mortgage, existing interest rate and the new interest rate after which the calculator will return results comparing the monthly payments on the old mortgage and the new mortgage plus information about the amount of time required for the homeowner to recoup closing costs.


When Credit Scores Drop

Most homeowners believe a drop in interest rates should immediately signal that it is time to re-finance the home. However, when these interest rates are combined with a drop in the homeowner’s credit score, a re-finance mortgage may not be favorable to the homeowner. Therefore homeowners should carefully consider their credit score at the present time in comparison to the credit score at the time of the original mortgage. Depending on how low interest rates have dropped, the homeowner could still benefit from re-financing, even with a lower credit score, if he/she can get approved for any of the special programs which are offered periodically or via a government-insured program (e.g. FHA). Homeowners may take advantage of free re-financing quotes to get an approximate understanding of whether or not they will benefit from re-financing.

Have the Interest Rates Dropped Enough?

Another common mistake homeowners often make in regard to re-financing is to re-finance whenever there is a significant drop in interest rates. This can be a mistake because the homeowner must first carefully evaluate whether or not the interest rate has dropped enough to result in an overall cost savings specific to each individual’s situation. Homeowners often make this mistake because they neglect to consider the closing costs associated with re-financing the home. These costs may include application fees, origination fees, appraisal fees and a variety of other closing costs. Costs can add up quite quickly and may eat into the savings generated by the lower interest rate. In some cases the closing costs may even exceed the savings resulting from lower interest rates.

Re-Financing Can Be Beneficial Even When It is a Mistake

In reality re-financing is not always the ideal solution, but some homeowners may still opt for re-financing even when it is technically a mistake to do so. A classic example of this type of situation is when a homeowner re-finances to gain the benefit of lower interest rates even though he/she winds up paying more in the long run for this re-finance option. This may occur when either the interest rates drop is not enough to result in significant savings or when a homeowner consolidates a considerable amount of short term debt into a long term mortgage re-finance. Although many financial advisors may warn against this type of financial approach to re-financing, homeowners sometimes go against their advice and make a change which may increase their monthly cash flow by reducing their total debt. This type of re-finance is known as a “debt-consolidation” re-finance and the homeowner is therefore making the best possible decision for his/her personal needs.

A message to followers and supporters of this blog:

Thank you for your support. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Occasionally, we’ll post content from our other sites based entirely on its value to you. Please let us know what you think in the comments section. Thanks and God Bless! Javeton

For more about 203k, please visit the HUD website. To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com/New_20_Jersey.html. Please send inquiries to Tony Phillips. For additional 203k mortgage sources and relevant information, please visit the recently launched B.K.HECM Home Loan search.
 

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humor
If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?

30 Year Home Loans

It used to be the first choice of most borrowers, because since the total payments are spread over a longer period of time with the interest rate set for the entire time of the mortgage, the monthly payments are naturally lower. A 30 year home loan is the industry standard but is it the right choice for you?

As we mentioned, the plus side of a 30 year home loan is lower monthly payments. This attraction is somewhat dimmed by the fact that you pay thousands extra in interest. But, your interest is 100% tax deductible which does lower your after tax cost. It offers you some flexibility so that if your financial situation changes and you have more money you can pay it off in less than 30 years, this while keeping the low monthly payments. Your payments are smaller so in reality you can purchase a larger roomier home.

Here is an example of the difference in interest between 30 year home loan term and one of the other terms:

On a 30 year, 200,000 dollar loan using 5.5% interest rate your monthly payment of principle and interest would be $1135.58. Over the next 30 years you will have paid approximately $208,809 in interest alone. Now with a 15 year term loan at the same rate (although the rate on a 15 year term mortgage will generally be lower) on the same amount you will pay $1,634.17 per month over the next 15 years, and your interest payment for the full term would be approximately $94,150. This would save you $114,659 over the full term.

However, if you have the will power to invest savings from the monthly payments, it still could be a good choice to go with the 30 year mortgage. Especially if you can find an investment that the long term payoff matches or exceeds what you would save in a 15 year mortgage. Another factor to consider is how fast you want to accrue equity in your home or to own it out right. 30 year home loans take much longer to build equity.

30 year home loan payments are certainly attractive and the vast majority of home buyers get 30-year loans because that is the longest home loan term available. Experts agree if they could get a 35 or 40 year loan, they probably would. There are many other options to consider, but probably the biggest question you have to ask yourself when considering a home loan is what are your financial goals? What loan plan will help you the most to reach that goal? It is clearly to your advantage to look into other loan options for the best home loan available to help you meet your financial goals. It may surprise you that based of your personal situation there may be other plans more suitable for you.

A message to followers and supporters of this blog:

Thank you for your support. We will continue working to provide the most relevant and useful information about current FHA-insured programs and related topics. Occasionally, we’ll post content from our other sites based entirely on its value to you. Please let us know what you think in the comments section. Thanks and God Bless! Javeton

For more about 203k, please visit the HUD website. To find out if you qualify for 203k financing, visit a HUD-approved lender at http://www.unitednorthern.com/New_20_Jersey.html. Please send inquiries to Tony Phillips. For additional 203k mortgage sources and relevant information, please visit the recently launched B.K.HECM Home Loan search.

Click the TOM-SL button to subscribe to 3-in-1mortgage information services. This is a free service!

Add my expertise to your Google search results

humor

If the government can’t run business, how come businesses always run to the government for a bailout when it runs into trouble? FHA-insured mortgages, government run for 75 years. Lest we forget?