The Benefits of a FHA Mortgage Loan

When it comes to qualifying for a home loan, there are many different types of programs available. With the many different home loan programs available, it is important to choose the best program for your particular mortgage loan needs.

One of the home programs you can choose from is a FHA mortgage. This type of program is designed for 1st time home buyers. FHA home loans can be used to purchase a primary residence or refinance an existing home loan. Below are the many benefits to the FHA program.

Reduce Down Payment

A FHA mortgage loan offers buyers a program with a lower down payment. The current minimum down payment for a FHA loan is 3.5%. The source of the funds for the down payment can also come from many different sources including a gift from a family member or church, a 401K loan or withdrawal, and any money saved up in a checking or savings account. By allowing the down payment to come from many different sources, the FHA mortgage loan program helps buyers purchase their new home.

Seller Paid Closing Cost

FHA loans also allow the seller to contribute up to 3% towards buyers closing cost. This is extremely important in assisting a client purchase a new house and reducing the amount of money needed for closing. Sellers can pay closing cost, prepaid items like taxes and home insurance as well as interest on the loan. For example, if a buyer purchases a home for $200,000, the seller can contribute $6000 towards the buyers closing cost.

Lower Mortgage Rates

For many people, FHA home mortgages offer the best rates. FHA loan rates are not tied to credit scores like the way conventional mortgage rates are. For example, if a client has a credit score of 660, the FHA home loan the rate would be same if their score was 740, but on a conventional home loan, the credit score of a 660 compared to a 740 would see an increase of about.75% to the rate.

Mortgage Insurance

Another benefit in the FHA mortgage loan program is the approval of mortgage insurance. FHA mortgage insurance is approved as long as the mortgage is approved. This is not the same when it comes to a conventional home loan. Many times, a home buyer can be approved for a conventional mortgage, but will not be approved for mortgage insurance. This results in the denial of the home loan, but with a FHA mortgage loan, as long as the loan is approved, mortgage insurance is approved. Also, the monthly mortgage insurance payment for a FHA mortgage is usually less than the private mortgage insurance offered on conventional home mortgage loans.

Mortgage Amount Limits

FHA home loans do have set loan limits that are established by HUD. To determine the loan limit in your area, contact your mortgage loan advisor. For example, in the Dallas – Fort Worth area, FHA loan limits are $271,050.

Streamline Refinances

Finally, one of the best benefits to a FHA mortgage is the ability to do a streamline refinance. A streamline refinance is when a homeowner refinances an existing FHA mortgage loan into a new FHA mortgage loan. The streamline refinance program allows the client to refinance with limited paperwork. Though, it might be in the best interest of the client to consider a full refinance over a streamline. Consult a home loan officer to see which program is best for you!

FHA loans are a great way to refinance or purchase a home. It is important to understand the benefits of each home mortgage loan program that you are applying for and to make sure you are getting the best possible mortgage loan.

Online Mortgages: Online Mortgage Applications and Obtaining Low Mortgage Rates Online

Mortgage Loans

There are several different types of mortgage loans. Some of the main types of amortized loans represent the adjustable rate mortgage and the fixed rate mortgage. Many mortgages are available online as well as online mortgage quotes.

Fixed Rate Mortgage

Fixed rate mortgage interest rate and the monthly payment is always fixed for the duration of the mortgage loan. Some of the common mortgage terms are 10, 15, 20, and 30 years. In the recent years some lenders have been offering terms that are amortized for 40 and 50 year mortgage terms.

Adjustable (Variable) Rate Mortgage

Adjustable or variable rate mortgage interest rate is fixed for an agreed period of time. After the expiration of this time, it will periodically adjust upwards or downwards according to market index levels. Those indices include the Prime Rate, the London Interbank Offered Rate, and the T-Bill (Treasury Index).

Mortgage Rates : Bad Credit Good Credit Game

Lenders refer to the borrowers’ credit reports and credit scores when approving a mortgage application. The better (higher) the score, the better rates a borrower can obtain. Lower credit scores, however mean higher risk to the lender, therefore mortgage lenders will require higher interest rates in order to compensate for the increased risk.

Balloon Type Mortgages

A balloon, or partial amortization loans are the ones in which the mortgage monthly payments are calculated over a certain period of time. The outstanding principal balance is payable at by the end of the mortgage term. This type of payment of the principal is also called a balloon payment. A balloon mortgage loan can either be of fixed or an adjustable interest Rate.

Online Mortgage Applications and Obtaining Low Mortgage Rates Online

Mortgages online can typically be obtained at lower online rates. Many people save thousands of dollars when applying for a mortgage online or when getting an online mortgage quote.

The Truth About Reverse Mortgage Loan Costs

If you have been looking into getting a reverse mortgage, then undoubtedly you have heard that one of the negatives repeatedly cited is that the costs are high. On the surface this seems to be a true statement. However, if you start dissecting the costs of a reverse mortgage and compare those costs to alternatives like selling your home and moving, you may find that the costs are only high if you have other assets or sources of income to access other than your home. If you truly need a reverse mortgage in order to make ends meet or for other financial reasons, then you may realize that the costs are not too high given your particular circumstances.

Lets take a closer look at what the real costs of a reverse mortgage are and what these costs pay for.

The majority of reverse mortgage loans that have closed in the United States to date, have been the FHA insured HECM (Home Equity Conversion Mortgage.) Because these loans are insured by FHA and backed by HUD they are considered to be the safest reverse mortgage loans available and usually offer the most benefits and more choices of how you can elect to receive your loan proceeds.

The guarantees that you receive with the FHA insured HECM reverse mortgage loan are:

1. Under the tenure option you will continue to receive your monthly payments from your reverse mortgage as long as you live in your home. That means that even if you outlive your life expectancy and your house is not worth as much as your reverse mortgage has paid you, you will continue to receive those payments, until you permanently leave your home. Guaranteed!

2. Your heirs or your estate will NEVER owe more on the loan than the value of your home at the time the loan is repaid. Reverse Mortgage loans are non-recourse loans. The lender can never come back to your estate or your heirs if there is a shortfall at the time of repayment.

3. Additionally, if the lender should happen to go out of business, the FHA insurance guarantees that you will continue to receive your monthly payments or have access to your credit line in accordance with the terms of your original loan agreement.

If the FHA mortgage insurance was not available, you can be sure that there would be very few lenders willing to make reverse mortgage loans with the favorable terms that are offered to seniors today.

The cost of the FHA insurance premium is 2% of the loan amount. The insurance premium along with other closing costs are rolled into the loan. They are not upfront out of pocket expenses, they are simply paid by you or your estate at the time the loan is repaid.

Loan Servicing Fee:

A monthly loan servicing fee of up to $35.00 per month is charged to the borrower as part of the overall closing costs. All lenders charge a loan servicing fee. However, on a forward mortgage the loan servicing fee is incorporated into the interest rate on the loan, so the borrower often times isn’t even aware of it.

On a Reverse mortgage the servicing fee is set aside upfront and is calculated based upon the life expectancy of the youngest borrower. The lender receives the servicing fee each month as long as the loan is in force. If the borrower leaves the home permanently before the servicing set aside is exhausted, the balance remaining is distributed to the borrower or the borrowers’ estate.

Loan Origination Fee:

The loan origination fee is the fee that is charged by the lender to originate, process and close your reverse mortgage loan application. FHA caps the loan origination fee at 2% of the value of the house or the maximum FHA loan limit for your geographical area, whichever is less. FHA also states that the origination fee in any case is not to be less than $2000. (At the time of this writing, Congress and HUD are discussing changes to this mandate.) Some lenders have been known to negotiate the loan origination fee to compete for business.

The three fees mentioned above make up the lions’ share of the closing costs for a reverse mortgage. In addition to these three, you will have costs that you are familiar with from previous mortgages that you have had. They are fees such as, appraisal, credit report, flood certification, courier, recording, document preparation, pest inspection, closing or escrow fee, title insurance, survey. (This may or may not be a complete list, depending on your area of the country.)

So Are The Costs Really Too High? – You Decide

It is best to view the costs in comparison to the value that you will receive from the benefits of getting a reverse mortgage. You must evaluate the costs compared to the improvement in your lifestyle, your increased monthly income, and the fact that you are not burdening your children at this time in your life. Personally you will not feel the impact of the closing costs. They are simply a cost from your estate at the time your house is sold or refinanced and the loan is paid off. It is foolhardy to reject the idea of getting a reverse mortgage based strictly on the cost of this valuable financial planning tool.

After all, if you considered one of the obvious alternatives, which would be to sell your home, you would be looking at paying 6% in real estate commissions as well as typical sellers’ closing costs and possibly some costly home

repairs. You would then have relocation costs for yourself which could include a down payment of 5% – 20% for another home, moving expenses of $5,000. or more and closing costs of 2% – 3% for a new mortgage. As you can see the cost of selling your home far outweighs the cost of obtaining a reverse mortgage.

A Word of Caution:

Now that you know that the costs for a reverse mortgage do tend to be higher than the costs of a traditional forward mortgage, hopefully you also have an appreciation for why they are high. That being said, you probably are not a candidate for a reverse mortgage if you anticipate permanently leaving your home in less than five years. Five years seems to be the consensus among industry experts, to be the critical time frame to remain in your home to make the costs worthwhile. If you feel you will leave your home sooner than five years, you should consider alternative options, such as a cash out refinance or a home equity loan to tide you over until you sell or move out of your home.