mortgage

FHA Loan

FHA Loan

FHA loans are sanctioned by the lenders that are approved by the central government that are insured by the Federal Housing Administration to those with low to moderate income levels. It is a type of a mortgage loan that allows borrowers to pay a very low down payment which is as low as 3.5 percent and has less stringent and more flexible criteria of lending.

FHA loans are sanctioned by the lenders that are approved by the central government that are insured by the Federal Housing Administration to those with low to moderate income levels.

It is very popular type of loan among people because of the low down payment. That is why many new borrowers opt for this loan which lends the creditor up to 96.5% of the amount for purchasing their homes. The remaining 3.5% of the loan can be considered even if the amount is a grant or a gift.

For the senior citizens, the FHA also issues a Home Equity Conversion Mortgage (HECM), which is a type of a reverse mortgage, that lets senior citizens exchange their equities in their homes for money when they take ownership of their new houses.

Some more information on FHA loans:
If you are buying your first home, most likely 1 to 4 unit properties, the FHA loan is the best suited loan for you. The low down payment of only 3.5% will help you in numerous ways.
If you are a senior citizen, of age 61 or more, then through the HECM program you can opt for conversion of the equity of your fully-owned home to cash.
The FHA loan will also let you add the amount required for making your home energy-efficient (like, adding solar panels etc.) into your total loan amount. So the expenses that one would make by themselves on their home, gets added to the FHA Energy-Efficient Mortgage.
FHA loans are sanctioned for factory-made homes as well as mobile homes. They are two different types of mortgages, one for the factory-made homes that are to be given to those who own their own land, and second to those who wish to buy a mobile home for staying at the mobiles home parks.
If you have a low or moderately bad credit score history, you may be eligible to apply for FHA loans. However, the down payment may increase to 10% or more, depending on your credit score.
Borrowers will have to apply for their FHA loans through FHA approved lenders only. FHA does not provide the loan, rather acts as an insurer.

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FHA Loans

by Kylee Sanders

The FHA loan is a type of mortgage loan that is secured by the Federal Housing Administration under which the lenders issue loans to borrowers at a very low down payment and affordable interest rates. Following are the types of FHA loans that a person can opt for:

The FHA loan is a type of mortgage loan that is secured by the Federal Housing Administration under which the lenders issue loans to borrowers at a very low down payment and affordable interest rates.

Fixed Rate FHA Loan

These types of loans are issued to those who have not been able to put aside their savings to buy a property. For example, students, young pupil who have newly joined work, recent payments of debts for college or tuition and many others can apply for this loan.

Adjustable Rate Mortgage (ARM)

This loan is issued to those who have low to moderate income levels. With these types of loans, one can easily get an ownership to a home. The rates of interest applied to this loan many change overtime.

FHA Secure Refinance Loan

FHA Secure Refinance loan allows families or individuals applying for the loan, to avoid foreclosure. Because FHA understands that sometimes due to certain unavoidable circumstances one may not be able to pay the EMIs on time, FHA has established a plan that can help the borrowers.

FHA Reverse Mortgage

Senior citizens aged above 62 can apply for a loan and transform the equity in their homes to cash or credit. One does not require any income proof or credit score limit to apply for this loan.

Energy Efficient Mortgage

Through the Energy Efficient Mortgage you can add the expenses of adding energy-efficient equipment to your home, into your mortgage. This will significantly reduce your monthly payments, thus lowering the pressure of monthly expenses.

Graduated Payment Mortgage

This type of loan is sanctioned to those who currently fall under the category of either low or moderate income levels, but their financial condition is expected to improve significantly over the next 5 to 10 years. The initial costs and down payments are kept very low, and as the income increases, so do the EMIs.

Growing Equity Mortgage

This loan is for new or small families or individuals who have moderate or low income, but their monthly incomes have a chance of increasing within a short period of time. The mortgage payments start with low payments and increase gradually.

FHA Loans for Condominiums

As per the name, this loan is sanctioned to those aspiring to buy condominiums.

There are various other loans available for different individuals or borrowers.

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Create a PMI Chart

by Kylee Sanders

PMI stands for Private Mortgage Insurance. This type of insurance protects the lender against any defaults made by the borrower in returning the loan. Because of the fact that the borrowers have little to lose if they back out from the loan, the lender will face any loss.

The low down payment of loans requires the borrower to get a PMI.

The low down payment of loans requires the borrower to get a PMI. For example, the loans with LTV (loan-to-value) percentages pertaining to their amount, above 80% will require a PMI. The PMI needs to be paid monthly by the creditor till a certain amount of equity on their property is achieved, by which the creditor finds the loan to be of low risk.

How to determine PMI cost and rate of interest?

The following is a chart that can be used to determine the PMI payments depending on the LTV.

LTV PMI

80.01 – 85% 0.375

85.01 – 90% 0.47%

90.01 – 95% 0.78%

95.01 – 97% 1.04%

Therefore, from the above chart we can determine that the higher the LTV, the more the PMI interest rate and the risk for the lender will be more. These charts can be found on the lender’s website or can be asked for in person, before applying for the loan.
To determine the PMI you can refer to the above-mentioned chart. The PMI rates and the rates of interests vary significantly through the years and new policies that come up, in addition to what your credit score is. It can range from 0.3% per annum to 1.5% of the principal loan amount.
For example, if you plan to buy a house of $200,000 and make a down payment of 10% (that is $20,000), your loan amount will be $180,000. Depending on your credit score, you opt for an insurance that has a 0.47% interest rate per annum. 90% LTV (10% down) will cost you 0.47% of interest rate. So, you will have to pay $846 every year, or $70.5 every month.

A little more about PMI

The shorter the loan tenure, the smaller the interest rate will be. Adjustable loans may cost you more than fixed-rate loans. This is how tenure affects your PMI.
You need not pay PMI once your LTV reaches 80% of the loan amount or you acquire 20% equity on your home.
You should also note that the lender will need to be reminded about the cancellation of PMI. So, keep a pen and paper ready to write to them about it.

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Remove Mortgage Insurance

by Ryan Kendall

Mortgage insurance is a dreaded term for all those people who want to buy their dream house. Most people take home loans, and those of who are unable to put 20% value of the house as down payment while taking the loan, are required to have a mortgage insurance. Also known as Private Mortgage Insurance (PMI), the payments for this insurance is made by the consumer to benefit the lender, so as to ensure that in case the consumer is unable to pay the loan in the long run, they can get their initial amount through the PMI.

Mortgage insurance is a dreaded term for all those people who want to buy their dream house.

This is a profitable proposition for the mortgage market as the mortgage insurance has additional premiums as compared to a normal mortgage deal. The cost of mortgage insurance payments makes the homeownership cost a lot more than without it. The benefit is solely received by the loan giver.

Now, if you want reduce mortgage insurance,(which you would definitely want to reduce) , we give you some suggestions which can help you out.
• First and foremost, try to give a good amount in the down payment. Mortgage insurance is only required if you give less than or 20% of the cost of amount of your home as down payment. If you can give more, do it, for you will be saved from paying the premiums towards mortgage insurance.
• You can get rid of the PMI also by paying the original balance of the loan, below 78% of the total value. Once the 20% of the value of the loan has been paid off, you can ask to remove the PMI.
• Another great way to reduce mortgage insurance is to get your home reappraised. If you bought your home when the market was down or you have upgraded the value of your house , then you can to get your home reappraised. If the value is more than 20%, you are lucky!
• If you have taken a loan with high interest rates and PMI, then you can refinance your loan, which will help reduce the interest rate and even in the elimination of the PMI.
• You can also opt for lender paid mortgage insurance. In this case, your PMI will be waived off on the condition that the interest rates remain high during the life span of the loan. The advantage of this option is that you will get higher tax deductions than what mortgage insurance would have given you.

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Private Mortgage Insurance

by Ryan Kendall

What is Private Mortgage Insurance?

Private Mortgage Insurance or PMI protects the lender, for example the bank, if one stops making payments on the loan. Lenders may require one to purchase PMI if the down payment is less than 20 percent of the sales price or the appraised value of the home. PMIs are usually added to the monthly mortgage payment. One may be able to cancel the Private Mortgage Insurance after a few years based on certain criteria, such as paying down the loan balance on certain amount. Borrowers pay their PMI monthly until they have accumulated enough equity in the hone that the lender no longer considers them high risk.

Borrowers pay their PMI monthly until they have accumulated enough equity in the hone that the lender no longer considers them high risk.

Why should one avoid paying PMI?

PMI seems like a great way to buy house without having to save up the cash for down payment. But here are a few reasons why the borrowers must avoid PMI:

The Cost: PMI usually costs 0.5% to 1% of the entire loan amount. The PMI itself turns out to be a hefty amount in the end, and may lead to spending a lot more than initially intended.

Get nothing in the future: There is a myth that the children of the homeowners taking the insurance will get some of the money as insurance if they die, while this is not true. If you want to protect your children and provide them with money for living expenses upon your death, then you may have to look at other options and obtain a separate policy.

Payment goes on and on: Some lenders require the homeowner to maintain a PMI contract for a designated period of time. Checking with the lender and reading the fine print of a PMI contract for more specifics may be helpful.

How can you avoid paying private mortgage insurance?

A popular option in the past was 80-10-10 or the piggyback mortgage, which used a combination of a second mortgage or home equity loan and the down payment to reduce the loan to value ratio of the primary mortgage. One way to remove the PMI is when the loan is near the threshold value. PMI will be automatically removed by the lender at this time.

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