Top 10 FHA Loan Advantages

by plano 20. June 2011 05:42

Fannie Mae and Freddie Mac underwritten conventional, FHA and VA loans account for the vast majority of mortgages chosen by buyers to finance their home purchase. While buyers have the choice on which product to use, there are some considerable advantages to FHA.

  1. More tolerant for credit challenges than conventional loans.
  2. Lower down payments than conventional loans.
  3. Broader qualifying ratios - total house payment with MIP can be up to 31% of borrower's monthly gross income and total house payment with all recurring debt can be up to 43%.
  4. Seller can contribute up to 6% of purchase price - this money must be specified in the contract and can be used to pay all or part of the buyer's closing costs, pre-paid items and/or buy-down of the interest rate.
  5. Self-employed may qualify with adequate documentation - two year's tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
  6. Mortgage Insurance Premium can be released in five years when the balance is 78% of original sales price
  7. Liberal use of gift monies - borrowers can receive a cash gift to assist in purchase from family members, buyer's employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
  8. Special 203(k) program for buying a home that needs capital improvements - requires a firm contractor's bid attached to the contract specifying the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
  9. Loans are assumable at the existing interest rate - assumptions require buyer qualification but are actually easier than qualifying for a new mortgage. Closing costs are lower on assumptions than originating a new mortgage.
  10. If the rate on the assumable mortgage is lower than current rates for new mortgages, it could add value to the property.

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One more chance?

by plano 20. June 2011 05:40

Fixed Rate mortgages are at their lowest level for 2011 as reported in the current Freddie Mac weekly Primary Mortgage Market Survey. Many qualified buyers missed the opportunity last fall in October and November to refinance at record low rates. This may give homeowners one more chance to refinance and save money on their payments.

An important thing to keep in mind is that points paid in connection for refinancing a home are generally not considered prepaid interest and must be spread over the life of the mortgage. Some advisors suggest that you have the lender quote a "par value" loan to eliminate the points which will lower refinancing costs even though the mortgage rate will be slightly higher.

Additional income tax information is available in IRS Publication 936.

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Cash Now - Mortgage Later?

by plano 14. June 2011 10:57

You might think that a person who pays cash doesn't have many concerns or at least not the same ones as most people.  Roughly, about 9% of people paid cash for their home last year with a considerably higher percentage paying cash this year. 

The first question that comes to mind when I hear someone say they want to pay cash for a home is "Do you think that you might put a loan on the home in the future?"  Paying cash may affect your ability to deduct the interest on a mortgage placed on the home at a later date.

Currently, a homeowner may deduct the interest on up to $1 million of acquisition debt.  Paying cash for a home establishes acquisition debt at $0.  At that point, the only deductible interest would be home equity debt which is limited to $100,000 over acquisition debt.  You can get more information about this from IRS Publication 936.

On the surface, paying cash certainly seems simple but it may have consequences later.  As a Residential Finance Consultant, I can point out the areas when advice from a tax professional is in order.

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Start Your Projects

by plano 14. June 2011 10:54

Summertime is almost here and millions of Americans will be starting home improvement projects.  Whether they're classified as maintenance, updating or energy saving, they should make homeownership more enjoyable.

Remodeling magazine's 2010-11 Cost vs. Value Report suggests that some improvements are a better investment than others.  Front door and garage door replacements are two of the easiest and return the greatest percentage of cost on resale.

Kitchen and bathroom updates transform an older home and instantly give visitors and buyers a fresh impression. Countertops and appliances can be expensive but yield great results.  Painting the cabinets and replacing the hardware is much less expensive to change the look and feel of the rooms.

Energy efficiency enhancements can improve your enjoyment of the home and help save money on utility costs.

  • Replace older appliances - refrigerators, ceiling fans, water heaters, air-conditioners
  • Add insulation to keep your home cool in the summer and warm in the winter
  • Seal air leaks around doors and windows; holes in attics and crawl spaces with caulk, spray foam or weather stripping - more information
  • Seal all heating and cooling system ducts - more information

Looking through the eyes of a buyer could show you what features most date your home and could order the priority that you tackle the projects.

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