Posts Tagged hud
FHA Streamline Refinance Saves Money!
Posted by Victoria Belle-Miller in Finances on 03/13/2010
An FHA streamline refinance has multiple benefits for homeowners who want to refinance their current FHA mortgages. One of these benefits includes a lower interest rate. A lower interest rate, along with the other benefits of the loan, will save homeowners money that they can use to pay off other debt or to pay for other expenses.
What is an FHA Streamline Refinance?
The purpose of this type of financing is to lower a homeowner’s interest rate on his or her loan and, in turn, lower his or her monthly mortgage payment. This loan allows homeowners to refinance their existing home loans with a more efficient process. With this type of financing, there is less documentation and less underwriting, which can make the loan process significantly quicker. There is also an option to refinance with this type of loan without having to get an appraisal, as long as certain requirements are met. If no appraisal is done, the new loan amount cannot be more than the original loan that was taken out by the homeowner.
Requirements of this Loan
A homeowner must already have an FHA mortgage that is current in order to qualify for this type of financing. This means there can be no delinquent payments on the mortgage. With this particular type of financing, no additional cash can be taken out. If a homeowner would like to receive cash back when refinancing his or her loan, there is a cash-out refinance option available, but this option is not a streamline loan.
There are closing costs associated with this loan, but a homeowner has options that allow him or her to avoid paying them out of pocket. In some instances, homeowners can choose to obtain a higher rate in exchange for lower closing costs. On the other hand, if there is sufficient equity in the home, a homeowner can decide to have the closing costs included in the new loan amount. An appraisal will determine if there is an adequate amount of home equity for the homeowner to choose this option.
Benefits of this Type of Financing
Refinancing with this loan can lower a homeowner’s rate and monthly payment and save him or her money over time. This type of loan has more efficient processing when compared with other home loans. It can have fewer requirements, and, in some cases, the closing costs can be financed so homeowners will have less money to pay upfront. This saves them more money for their other expenses.
There are not strict eligibility requirements for this type of financing. Homeowners do not need a high credit score or income to qualify for this loan, but most lenders will require that a borrower have a credit score of at least 620. For homeowners who would like more refinancing options besides the streamline refinance, the FHA also has refinance loans that allow a homeowner to consolidate debt, change the terms of his or her loan or receive cash back.
This type of financing is a great option for current homeowners who want a quick way to reduce their current interest rates and lower their monthly payments without having to meet all of the standard requirements for a home refinance loan.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
How Could an FHA Reverse Mortgage Affect Retirement?
Posted by Anne Johnson in Finances on 03/03/2010
A FHA reverse mortgages are available to homeowners who are at least 62 years of age and who own the home in which they live. This financial product can help seniors who do not have sufficient income to meet their monthly needs, but do have equity in their home. The FHA reverse mortgage works by liquidating that equity in order to eliminate monthly mortgage payments, disburse payments to the homeowner, or both. Provided that the homeowners remain current on their obligations, the homeowner is not required to repay any of the loan balance until they no longer occupy the home.
An FHA Reverse Mortgage Can Make Retirement Comfortable
A common misconception about the FHA reverse mortgage is that homeowners must own their homes free and clear in order to utilize this product. The truth is, one of the main uses of this financial product is to eliminate monthly mortgage payments. Without the burden of monthly mortgage payments, homeowners have extra cash available to help maintain or improve their standard of living. While there are no monthly mortgage payments required, as long as at least one homeowner remains using the home as their primary residence, homeowner’s insurance, real estate taxes, and home repairs continue to be the responsibility of the homeowner.
How Can the Funds from an FHA Reverse Mortgage Be Used?
If the homeowner has enough equity, he or she can not only eliminate monthly mortgage payments, but receive additional funds from the FHA reverse mortgage. The amount of the additional funds will vary based upon the home’s value, homeowners’ ages, and how much equity is available.
The funds can be disbursed in many different ways and tailored to the needs of the borrowers. The different disbursement options include a lump sum, a line of credit, monthly advance, or a combination of these options. The funds received from an FHA reverse mortgage can be used however the homeowners wish. Common uses for the money are to supplement monthly incomes, to finance healthcare, and to eliminate other monthly expenses, but there are absolutely no restrictions on the use of these funds.
Could the FHA Reverse Mortgage Affect my Government Benefits?
Depending on the type of assistance a homeowner receives, an FHA reverse mortgage could affect their eligibility to continue receiving it. Though the existence of the FHA reverse mortgage itself does not affect any eligibility requirements, the funds a homeowner receives from this product could.
If a homeowner receives an entitlement-based benefit, this financial product will not affect their eligibility. Federal entitlement programs in the United States include Social Security and Medicare. These programs are both based upon factors such as the recipient’s age and job history and, therefore, will never be affected by an FHA reverse mortgage.
Programs such as Medicaid and Supplemental Security Income are considered need based and could be affected by the proceeds from this financial product. In order to be certain that this product will not affect any federal or state benefits, home owners should speak with their caseworkers about the potential implication of receiving money from an FHA reverse mortgage.
An FHA reverse mortgage can help senior homeowners live more comfortably during their retirement. This product can eliminate monthly mortgage payments, as well as provide additional funds to help supplement a fixed income. While this product is certainly not for everyone, seniors who feel they may benefit from this type of loans should speak with a reputable reverse mortgage specialist about their options.
As a former psychology major, finding solutions to resolve people’s problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make decisions about reverse mortgages. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
FHA 203K Loan Makes Financing a Home in Need of Repairs Simple
Posted by Anne Johnson in Finances on 02/25/2010
The FHA 203K loan is a type of financing that is insured by the Federal Housing Administration. It is a unique type of financing that allows homeowners to obtain both a purchase loan and rehabilitation financing in the same transaction. Before this transcendent loan program, a homeowner had to obtain an initial, temporary loan to purchase the home and a separate rehabilitation home loan to make any necessary repairs. Only after the repairs were complete could the homeowner gain permanent financing for their newly improved home.
FHA 203K: How does it work?
The FHA 203K loan was designed to streamline the process of buying a home in need of repairs. In order to provide funds for the repairs, the loan amount is based on an expected future appraised value that takes into consideration how much value the completed repairs will add to the current value. Up to $35,000 over the purchase price of the home can be financed into the loan to cover the cost of repairs.
The contractors chosen by the borrower to do the repairs will receive the money for their work in two draws. One draw is for 50% of the work and is disbursed at the beginning of the repairs while the remaining 50% will be disbursed after the work is completed. The repairs must begin within thirty days of the closing of the loan and must be completed within six months. The amount paid to the contractor(s) must be determined before the loan closes by obtaining written bids on material and labor costs. The homeowner can do the work himself provided that he is a licensed and bonded contractor.
What types of repairs will the FHA 203K cover?
Some of the repairs eligible to be completed with the funds from an FHA 203k loan include: roof replacement, electrical or plumbing work, kitchen remodeling, accessibility renovations, appliance purchases, and painting. Although many cosmetic renovations are allowed, luxury items and upgrades are not permitted. Also, any funds needed to repair to any detached structures, like sheds, swimming pools, and gazebos, may not be included in this loan amount.
FHA 203K: Qualifications
The FHA 203K program has the same types of eligibility requirements that exist on any FHA home loan. A homeowner must qualify on the basis of both credit and income to be eligible and the property must be FHA approved. As a general rule, the monthly mortgage payment cannot exceed 41% of the borrower’s monthly income and most lenders require at least a 620 credit score. Homes that qualify include: FHA-approved condos, 1-4 unit homes, and planned urban development homes (PUDs). The construction of the home must have been completed at least one year prior to financing in order for the home to qualify.
The FHA 203K program can be a great tool for any homeowner looking to renovate or repair his or her home. In a housing market that has seen foreclosures reach record highs, the FHA 203k loan can not only provide potential home owners with more opportunities to purchase a home, but can also help rebuild the housing market by facilitating the rehabilitation of foreclosed properties.
As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
Lenient FHA Loan Guidelines Make Now a Great Time to Apply
Posted by Victoria Belle-Miller in Finances on 02/21/2010
FHA loans are a great option for first time homebuyers on the house hunt, as well as current homeowners who are looking to refinance their current mortgages. These loans offer low down payments, as well as low interest rates, which helps keep monthly mortgage payments low. This type of financing, which is insured by the Federal Housing Administration (FHA), also has more lenient credit and income qualifications than most other home loans. Even potential borrowers who have less-than-average credit scores may still be able to qualify.
Loan Eligibility
It is typically easier to qualify for this type of financing, compared with other types of home loans. While the FHA does have lenient credit score and income requirements, most lenders require that applicants have a credit score of at least 620 to qualify. The FHA also requires that applicants have a clean credit history of at least twelve months, meaning they have had no delinquent mortgage payments during the twelve months preceding their application. The house an applicant wants to finance must be his or her primary residence, which means they plan to live there at least six months out of the year.
Loan Requirements
This type of financing requires that the borrower make a down payment on the home being purchased, as well as monthly mortgage payments. The down payment can be as low as 3.5%, which is much lower than down payments on most other home loans. Applicants will also have to pay an upfront mortgage insurance premium on the loan, which is currently equal to 1.75% of the loan amount.
Before the loan can be closed, an appraisal will need to be done on the home to ensure that the home meets all of the minimum safety standards that the FHA requires and to document the value of the property. Borrowers also will be required to escrow their homeowner’s insurance and property taxes, which ensures that everything is paid up to at least one year.
There is interest on the loan, but it is typically lower than conventional loan rates. And borrowers can opt for fixed interest rates so that their rates remain unchanged over the life of their loans and their monthly mortgage payments are consistent. This option would be especially good for borrowers who have had credit issues in the past.
Loan Refinance
For a current homeowner, refinancing with an FHA loan could lower his or her interest rate, which could also lower the monthly mortgage payment. Refinancing also gives homeowners the option of changing the terms of their loans. They can extend the length of their loans or change from adjustable rates to fixed rates, which could save them thousands of dollars in the long run. With the cash-back refinancing option, homeowners can take out a loan for a higher amount than the amount needed to pay off their current mortgage and use the rest to pay off large bills or cover other expenses. There are no restrictions on how a homeowner can use the cash.
Apply Now Before Requirements Change!
This type of financing offers several benefits and has relaxed guidelines. A borrower who does not have a lot of money for a large down payment can still become a homeowner with this type of loan. Current homeowners can save money every month by refinancing and getting lower interest rates, as well as receive cash back for other financial needs.
The FHA will be changing their requirements in the next few months, so now is a good time to speak with a FHA loan specialist to determine whether this type of financing is right for you!
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
Valuable Reverse Mortgage Information
Posted by Victoria Belle-Miller in Finances on 02/20/2010
A reverse mortgage is not just another typical home loan. It offers several benefits that other mortgages usually do not and most are insured by the Federal Housing Administration. This type of financing is for senior homeowners who may need financial assistance and have sufficient equity in their homes that can be turned into cash. This loan will allow them to stay in their home without making monthly payments and they may even be eligible to receive additional cash back.
How the Loan Works
If a homeowner qualifies for a reverse mortgage, he or she will not be required to make any monthly mortgage payments. The loan does not need to be repaid at all until the homeowner no longer occupies the home and it is sold. He or she will be able to stay in the home without worrying about the possibility of foreclosure due to missing mortgage payments. Also, if there is enough equity in the home, it can be turned into additional cash. The amount of money a homeowner can receive depends upon the homeowner’s age, the value of his or her home, and current interest rates.
Homeowners can choose how the money they receive is to be disbursed so that the amount and schedule fits their lifestyles and personal needs. The disbursement options include a lump sum, line of credit, monthly payments or a personalized combination. There are absolutely no restrictions on how homeowners can spend they money they receive from their loans. Seniors can use the money they receive for medical bills, home maintenance or other expenses.
Loan Eligibility & Requirements
In order to qualify for this loan, applicants must own their home and be at least 62 years old. The home must be the applicant’s primary residence in order to qualify, which means he or she resides in the home at least six months out of the year. Because there are no monthly payments with this loan, there are no income or credit score requirements. Therefore, homeowners can still be eligible for this type of financing even if they have limited incomes or less-than-perfect credit histories.
Borrowers are not required to pay back their loans until they no longer own or occupy their home. The only instance in which a homeowner would be required to repay the entire loan amount is if he or she did not keep the homeowner’s insurance, property taxes, or home repairs up to date.
Before a homeowner can take out a reverse mortgage, he or she will be required to participate in loan counseling, which will explore all of their financing options. This loan may not be the right option for everyone, so counseling will let homeowners know if this type of financing is the best option for their financial needs.
Don’t Buy into the Hype
Many people attempt to discourage reverse mortgages by spreading misleading information about them. While this type of loan may not be the right option for every homeowner, it is by no means a bad option for senior homeowners who need to supplement their incomes or reduce their monthly expenses.
This type of financing is a great option for homeowners who plan on staying in their homes for many years and do not need to preserve their equity for any reason.
Victoria Belle-Miller is the newest member of the Senior Reverse Mortgage writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the team and a valuable source of sound mortgage advice.
In a Journalistic World Full of Opinions on Reverse Mortgages, Where is the Truth?
Posted by Anne Johnson in Finances on 02/08/2010
One month into the year 2010, many people have heard at least something-good or bad- about reverse mortgages. This product has become extremely popular in the last couple years and its popularity continues to rise. However, with popularity also comes criticism. Every article that is published seems to be a minimal amount of information clouded by a storm of opinions.
Although this product is different from any currently on the market, reverse mortgages are a still lien on a person’s home, just like traditional mortgages. Unlike traditional mortgages, a reverse mortgage does not require a person make monthly mortgage payments for as long as they live in the home.
Reverse mortgages are used so homeowners over the age of 62 can pay off their existing mortgage and obtain access to additional funds. Once a homeowner has taken out a reverse mortgage, they will never have to make a monthly mortgage payment again. This federally insured product does require that the homeowner remain current on real estate taxes, homeowner’s insurance, and home repairs. Provided that the homeowner maintains his obligations, the reverse mortgage will not become due until the homeowner moves away or otherwise vacates the home. If the homeowner fails to meet these obligations, the reverse mortgage could become due and payable before the homeowner leaves the home.
The federally insured reverse mortgage does have costs associated with it, just as all financial products do. Most of the up front costs associated with the product go directly to the government so that the reverse mortgage remains a non-recourse product. It is considered non-recourse because, assuming the homeowner continues to respect his contractual obligations, he will never owe more than the fair market sale value of the home.
Reverse mortgage benefits can help people who cannot comfortably afford their mortgage payments, health care, and daily expenses. Important to note is that this product is something which should be discussed with the homeowner’s heirs. In order for the home to remain in the family after the homeowner has passed away, the estate will be responsible for paying off or refinancing the reverse mortgage. This loan should not be considered if a homeowner wishes to leave a mortgage-free home to their heirs because it is a loan and does need to be repaid.
It seems that some critics are unclear on many important facts about this loan. The fees can be a little higher than traditional mortgages, but the interest is not. Also, the largest fees go directly to the government for insuring the reverse mortgage, not to the banker to make a quick buck. For homeowners who could use this product, the benefits strongly outweigh the costs.
There is a lot of misinformation surrounding reverse mortgages. This product is not right for everyone, but also should not just be used in the case of last resort. It can greatly help senior homeowners enjoy their retirement and the protections surrounding the mortgage continue to improve. Hopefully, the product will be around for many years to help seniors without enabling anyone to take advantage of them.
As a former psychology major, finding solutions to resolve people’s problems has always been a subject of interest to me. I hope that my writing will give people the knowledge and confidence to make important decisions about reverse mortgages. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
FHA Loans Can Still Provide Many Benefits
Posted by Anne Johnson in Finances on 02/08/2010
Many prospective homeowners and mortgage professionals have heard that the regulations for FHA loans are changing. After the sub-prime mortgage industry died down, the FHA home loan program became the scapegoat for any and all problems associated with the housing market. Critics believe that the FHA loan program is too lenient on its credit requirements. Because of this constant scrutiny and other outside criticisms, the FHA has decided to make some significant changes to its qualifying requirements for its home loan program.
In past years, the FHA home loan program did not require a specific credit score in order to qualify for their loans. Although most lenders required at least a 620, many critics of the FHA’s program believe that the lack of a credit score requirement has led to the large number of defaults after the housing market crash. In order to prevent this from happening in the future, the FHA’s new rules state that a borrower must have at least a 580 credit score in order to take advantage of their 3.5% down payment program. If an applicant has a credit score below 580, they must put at least 10% down on a new home.
A protection that has always existed on FHA loans is the required mortgage insurance. Mortgage insurance provides benefits for both the homeowner and the lender. This type of insurance helps the lender because it ensures that they will be paid in case of borrower default. Because the lender knows that the loan is insured by the federal government, they are more likely to offer favorable terms to the borrower.
A new change to the FHA’s mortgage insurance raises the up front premium by half a percent from 1.75% to 2.25% of the loan amount. This effort is a way to ensure the sustainability of the FHA loan program. The FHA is currently trying to obtain Congressional approval to increase the annual premium. If this approval is granted, the FHA would reduce the amount by which they increased the up front premium. Some FHA officials have discussed making the premiums risk based, which would mean that the premiums would vary depending on credit score and history.
The last protection which the Federal Housing Administration has decided to implement with these changes is a reduction in allowable seller concessions. When these new regulations go into effect, the seller will only be able to provide 3%, whereas before, the seller could provide up to 6% of the purchase price. These regulations are all set to take effect in April, 2010 and are an effort to increase the quality of FHA loans.
Only time will tell if these regulations will have the desired effect and increase the quality of the FHA home loans issued. Many homeowners are in agreement with the changes because they want the housing market to bounce back quickly and believe that the best way for this change to occur is to require more of prospective homebuyers. Other homeowners believe that, while encouraging people to improve their credit is beneficial, restricting home loan applicants does more to hinder the housing market rather than stimulate it. Hopefully, these new changes will have a positive effect and help the housing market grow and prosper.
As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
Reverse Mortgages: How They Work
Posted by Anne Johnson in Finances on 01/30/2010
Reverse mortgages are a unique product that has been available in various forms and with various features for over two decades, though it was not until recently that these loans gained the widespread attention of retired homeowners, news media, federal regulators, and the mortgage industry, in general. This new-found attention has been accompanied by a great deal of misinformation, misunderstanding and, probably as a direct result, heavy criticism of the product.
The bottom line with any legitimate financial product is that it is only as beneficial as it is appropriate. In other words, if the product is right for your situation, it is the right choice; if the product is not right for your situation, it is the wrong choice. Legitimate financial products are amoral – they cannot be inherently good or bad. It is how the consumer chooses to utilize these types of products that determines whether they are “good” or “bad” for them.
That being said, the next concern is how a consumer is to go about determining whether a particular financial product is right for them. The only way for a consumer to make an appropriate choice is to be well-informed about the decision he or she is making. This is especially true in when it comes to reverse mortgages because they are so different from traditional financing.
So what is a reverse mortgage? The aptly named reverse mortgage is so-called because, rather than borrowers incrementally reducing their loan balance by making monthly payments to the lender, they receive monthly payments from the lender that incrementally increase their balance. There are other options for how the borrowers can receive their funds, but the monthly payment option best illustrates how these loans compare with traditional home loans.
When an applicant chooses to purse a reverse mortgage, there are several factors that determine how much money they can receive. The options available to the homeowner are to receive monthly installments or a lump sum, access their funds as needed through a line of credit, or a combination of these options. The lender will use several factors, including the disbursement option that is chosen, to estimate how much can be disbursed to the borrower. The goal when making this determination is to ensure that, when the loan becomes due to be repaid, the amount owed to the lender will not be more than the value of the home.
A reverse mortgage must be repaid in full when the borrower(s) no longer occupies the home. At this time, either the borrower or borrower’s estate will sell the home and use the net proceeds of the sale to repay the lender. The balance will consist of the total of all disbursements made to the homeowner or on the homeowner’s behalf, as well as the interest and service fees that accrued while the loan was outstanding.
Most of the reverse mortgages issues today are Home Equity Conversion Mortgages (HECMs), which are insured by the Federal Housing Administration. This means that the homeowner will not be required to repay any balance that exceeds the market value of the home at the time that the loan becomes due. So, if home values decline or if the balance ends up being higher than initially anticipated, the homeowner is not left ‘holding the bag.’
The only exception to the protection that is offered by a HECM is if the homeowner fails to abide by certain terms of the mortgage contract. Fortunately, these mandates consist of staying current on the real estate taxes and homeowner’s insurance and keeping the property in good repair. These are responsibilities that exist with or without a reverse mortgage, but failing to meet these obligations with a reverse mortgage can result in the homeowner owing the full balance of the loan, regardless of the home’s value.
Any homeowners who are interested in considering a reverse mortgage for themselves should speak with a knowledgeable home loan specialists who can describe all aspects of this type of loan, as well as other types of mortgages, before making a decision about their home financing.
As a former psychology major, finding solutions to resolve people’s problems has always been a subject of interest to me. I hope that my writing will give people the knowledge and confidence to make important decisions about reverse mortgages. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
FHA 203k Loans Stimulate the Economy
Posted by Anne Johnson in Finances on 01/22/2010
There has been a fair amount of press recently surrounding the FHA’s home loan programs and a lot of it has been negative. Many people are more than willing to disparage how low the FHA’s reserves have become, which became a hot topic during the private audit done earlier this year. But many of these same people seem to have overlooked the ways in which the FHA has been positively contributing to the efforts to return the economy to a stronger state.
Standard vs. 203k
Most people have heard of FHA loans, but are not familiar with the 203k loan, specifically. The FHA loans that are granted under the terms of section 203k of the National Housing Act can help homeowners turn foreclosed or damaged homes into a wonderful place to live.
This loan is a rehabilitation program which allows borrowers to finance the cost of home repairs and certain types of home renovations into the loan, wither it be a home they are purchasing or one they already own.
The same rules apply to these loans as to standard FHA loans. They can only be used on homes that the homeowners plan to occupy as their primary residence and applicants must be prepared to document their income and employment history.
Making Sure the Homeowner and the Lender are Protected
Many people are recognize the value of these loans and their ability to stimulate the housing market, but are not aware of the safeguards that are in place to ensure that they are used properly and do not cause the homeowner to end up ‘under water.’
Before the loan can be approved, an appraisal is completed in order to document the current value of the home, as well as what the value will be once the planned repairs and renovations have been completed.
Contractors who perform the repairs and renovations financed by this program must comply to FHA guidelines, so it is important to find one who has worked with the 203K loan program before, or at least is familiar with the program’s regulations. Also important to note is that the work must begin within thirty days of closing and must be complete within six months.
Not Everything Qualifies
Although the list of repairs and renovations that can be financed with an FHA 203k loan is extensive, there are some projects which are ineligible for this type of loan. You may fiance rood repair, any plumbing or electrical work, and any renovations that add tangible value to the house, but you may not repair a cracked foundation or do any other major structural repairs.
The FHA 203k loan also does not allow homeowners to finance luxury items, such as pools, but does allow them to use high-end materials, such as granite, for their renovations.
The FHA 203k program can help people turn foreclosed or otherwise damaged homes into a very pleasant and comfortable home. With this program, the FHA is helping people increase the value of their property, stimulating both the housing market and the economy itself.
As a former psychology major, finding solutions to resolve people’s problems has always been a subject of interest to me. I hope that my writing will give people the knowledge and confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
Get Low Rates With an FHA Loan
Posted by Victoria Belle-Miller in Finances on 01/20/2010
Overview
FHA loans are a great option for individuals who are either purchasing a new home or refinancing their current home. Because these loans are insured by the Federal Housing Administration (FHA), borrower s have access to lower interest rates than may be available to them on other types of home loans and can feel secure knowing their loan terms will never change.
FHA loans have a low down payment requirement (3.5% of the purchase price) and they allow homeowners to finance a large percentage of their home’s value, allowing them to either receive more cash back from a refinance or save money on a down payment for a purchase.
The FHA does not require high credit scores, so it is easier for individuals to qualify for this type of loan than most others.
Competitive Interest Rates, Even for Less-Than-Perfect Credit
Because these loans are insured by the FHA, they are considered by lenders to be a reasonably secure investment. The insurance reimburses lenders for any outstanding balance in the event that the borrower defaults. This makes FHA lenders more likely to offer their customers lower interest rates.
Although mortgage rates constantly fluctuate and depend upon current mortgage market conditions, they are usually low compared with other types of loans. If borrowers choose a fixed rate for their FHA mortgage, that interest rate will never change over the life of the loan.
With a fixed rate, the homeowner will always know what to expect on their monthly payments and will not have to worry about rates or their monthly payment increasing.
Homeowners who have an FHA loan can lower their interest rate any time the market improves with a streamline refinance, which requires less documentation and processing than other refinance transactions.
When borrowers refinance, they can lower both their rate and monthly payment. If rates have decreased since the original loan was taken out, even homeowners with a fixed rate can receive a lower rate with the streamline refinance. Lowering the rate on a home loan frequently results in not just long term savings, but lower monthly payments, as well.
Eligibility Requirements: Credit and Type of Ownership
To be eligible for an FHA home loan, the borrower must be financing the home that is his or her primary residence. The FHA does not require that borrowers have high credit scores, but most lenders want borrowers to have a credit score of at least 620. In addition, there can be no delinquent mortgage payment reported within the 12 months preceding the loan application.
If a potential homeowner has not built up a sufficient credit history, he or she can still qualify for an FHA loan. These applicants will be asked to provide certain types of alternate documentation in order to prove their ability to consistently make payments.
While not every financial product is right for everyone, FHA loans have many benefits that make them the ideal solution to a variety of home financing needs. Homeowners who feel they may be interested in this type of financing should speak with an FHA loan specialist to find out more about their options.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.