FHA vs. Conventional Loans by Kevin Budde

A Comparison of FHA 96.5% and Conventional 95% Loan to Values

FHA 3.5% Down Payment

$400,000 Sales Price Key Points on FHA

$ 14,000 Down Payment

$386,000 Loan Amount 45% Debt to Income is allowed

1% Added to Loan Amount ($3,860)

$2,033 Principal and Interest 4.750% for Up-Front Mortgage Insurance

$ 369 Mortgage Insurance 1.15% 620 Credit Score Allowed

$ 366 Property Tax 1.1% Income to Qualify in This Example;

$ 75 Hazard Insurance $6,317 Monthly or $75,804 Annual

$2,843 Total Down Payment May Be a Gift

Conventional 5% Down Payment

$400,000 Sales Price Key Points on Conventional

$ 20,000 Down Payment

$380,000 Loan Amount 41% Debt to Income Required

No Amount Added to Loan Amount

$2,010 Principal and Interest 4.875% for Mortgage Insurance

$ 297 Mortgage Insurance .94% 720 Credit Score Required

$ 366 Property Tax 1.1% Income to Qualify in This Example;

$ 75 Hazard Insurance $6,720 Monthly or $80,424 Annual

$2,748 Total No Gift for Down Payment Allowed

For additional information please contact a member of the Kevin Budde Team

Determining the amount a bank will lend you for a home

5 Tips for Determining the Amount a Bank Will Lend you to Buy a Home

Posted on January 24, 2011 by admin

Before you can really begin looking for a home to purchase, it is important to determine how much you will be able to borrow. This will prevent you from spending time looking at homes that do not fit into your mortgage budget. Below we have listed the items bankers look at in determining the amount of funds they will loan you for a home purchase.

1. Monthly Income The first thing a bank will want to know in determining your loan approval amount is how much income you receive a month. They will want to see paycheck stubs for the last month or two to verify the average wages you are receiving. They will also want to know if you have any additional income sources that can be added to your annual income. The higher your annual income the greater potential you have for being qualified for the loan amount you are needing to purchase a home. If you have only been with your employer a short time, the bank may rely more heavily upon your last income tax return to verify income potential. This can be a positive or negative situation depending on your individual circumstances.
2. Monthly housing expenses After determining your income potential, a bank will begin to calculate the amount of expenses that will need to be paid out of your income. When buying a home, the bank knows that you will have some expenses that relate directly to home ownership. Home insurance and real estate taxes are two of those expenses that every home owner has. These of course will vary depending on the home you purchase but most banks can estimate these fairly closely by simply knowing the general locale and price range you are looking for in a home. Some home’s have additional expenses as well. A condominium and some other association type housing also have monthly association fees to be considered for upkeep of association owned property. Another potential addition to your housing expense is mortgage insurance. If you will be borrowing more than 80% of the value of the home, most lenders will require that you have mortgage insurance as well to protect them against the possibility of a default on the loan.
3. Other monthly expenses After considering the expenses directly related to the home purchase, the bank will want to know what other financial obligations you have. You will be asked to provide them will a list of any loans, credit cards and charge accounts that you have. With this list they will want to know the total balance due and the minimum monthly payment. This will include things like car loans, student loans, major credit cards and department store credit cards. These expenses will be subtracted from income along with the estimated housing expenses listed in number two to determine your monthly ‘disposable income’. This is considered the amount of money you will have available for your house payment and other everyday living expenses such as food, fuel and utilities.
4. Ratio of debt to income Once the bank has determined the income and expense amounts that make up your personal financial picture, they will compare the ratio of your total monthly payments on debt to your total monthly income. When you take you take into consideration all your housing expense (including a mortgage payment) and add that to your other monthly debt payments, the banks generally prefer to see a ratio of no more than 36% of your gross income being committed to your total debt. In other words if your total gross income is $4,000.00 a month, they would like your total monthly debt (including the mortgage payment) to be no more than $1,440.00. Some lenders may allow a slightly higher ratio but that seems to be a fairly recognized industry standard.
5. Calculating your loan payment To calculate the amount of your potential mortgage payment, you can use a mortgage payment calculator. You can find these on most of the larger mortgage lender’s websites. They will require you to enter in the amount you will be borrowing, the term of the mortgage (how many years) and the interest rate. With these amounts entered, it will be able to calculate your monthly mortgage payment.

To make it even easier for you, there are several sites online that have calculators that will work through all these scenarios for you. www.mortgage-calc.com is one of those sites. It walks you through the process of determining your debt to income ratio and then follows that with a calculation of your mortgage payment. There is no need to go into a banker unprepared. With a little research ahead of time you can know for yourself what size of mortgage you qualify for.

Thank you to Doorfly.com and Ann Douglas who shared this article with me!

New Grant for Home Purchases!

Platinum Down Payment Assistance Program

Brought to you exclusively by Bank of America and the Kevin Budde Team

This homebuyer assistance Program currently provides low-to-moderate income families and individuals with a grant that does not have to be repaid.Many times this allows them to purchase a home much sooner than they thought possible.

This Program is available for the purchase of an owner-occupied single-family residence or approved condominium located in California.

The grant made possible through the Program, can be used towards the homebuyer’s down payment and/or closing costs on a 30 year fixed rate FHA or VA loan.

The Program is available for purchases of both new and existing homes and is NOT limited to first-time homebuyers.

§ Down payment assistance in the form of a grant

§ For the purchase of primary residences in California

§ New or existing properties are eligible

§ Program is NOT limited to first-time homebuyers

Please leave me a message and I will get you in contact with a member of the Kevin Budde team. I look forward to hearing from you!

FHA and REO Properties

HUD’s Real Estate Owned (REO) properties are a result of paying a claim to a lending institution and the lender transferring ownership of the property to HUD. Typically, title to REO properties is held by the lender prior to transfer to HUD due to the borrower’s default on the mortgage.

Through the Property Disposition Insured Sales Program, HUD offers its REO properties for sale with FHA-insured financing available. Properties must meet FHA’s minimum property standards. The appraisal process is HUD’s primary tool for determining the listing price of FHA REO properties.

Eligible purchasers of the property may be both owner-occupied borrowers and investors as well. For owner-occupied properties, the borrower’s down payment is generally the required 3.5%. When investor financing is requested the down payment is 25% for one-unit properties and 15% for two, three and four unit properties.

However, in some markets, the cash investment requirement may be reduced by the local HUD office. HUD may authorize additional sales incentives that can include down payment reductions or permission to include closing costs into the loan. Where additional incentives are authorized, they will be noted in writing on the HUD Sales Contract. As an example, one incentive offered by HUD was the down payment of $100 and $2,500 in cash at closing to pay for closing costs, tax pro-rations, repairs to the home and replacement of items in the home.

All HUD REO properties must have utilities inspected. HUD’s contractor will permit entry to the purchaser during the contract period to activate the utilities for the purpose of conducting a home inspection. In the event the home inspection reveals that repairs are needed which no longer makes the property eligible for an FHA loan, the lender should contact the HUD contractor to discuss alternatives to allow the sale to continue.

In the event the repairs are substantial, the borrower may wish to finance eligible rehabilitation in the purchase loan utilizing the FHA 203k Rehabilitation Program. When the repairs for the property are less than $5,000, HUD will allow a cash escrow account to be established and all repairs must be completed within 90 days. The escrow account must be administered by the mortgage lender arranging the new financing. The 203k Rehabilitation Program is not allowed on investor financing.

To locate HUD REO properties go to the website of the U.S. Department of Housing and Urban Development at HUD.Gov. Once there find Topic Areas then HUD Homes.

FHA Minimum Credit Scores

FHA Minimum Credit Scores

The Federal Housing Administration (FHA) has announced recently the minimum credit scores they will allow on loans they insure will be increased. Effective October 4^th, on all new loans, the minimum score allowed on loans with 3.5% down payment will be 580. Currently FHA will insure loans with a minimum credit score of 500 with 3.5% down payment.

However, most lenders, including Bank of America, are now adjusting the minimum credit score effective October 4th from 580 to 620 with a 3.5% down payment. This is known as a credit overlay in the lending world. So why, if FHA will allow 580, would a lender set the standards higher? The number one reason is the investors that buy pools of mortgage backed securities won’t buy securities if the minimum credit score is below 620 going forward.

Currently, 95% of all home loans closed are backed by Fannie Mae, Freddie Mac or FHA. This means that almost all of the home loans closed are being put into pools of mortgage backed securities and those securities come with some form of government backing to the investors that buy them. The private sector, which is jumbo home loans, does not offer any form of guarantee and therefore no one is buying them. The largest of banks are keeping the jumbo loans on their books and they are known as portfolio loans.

Even with the government backing, investors are fearful of additional short sales and foreclosures therefore they bid on pools that have the highest of standards only. As long as the secondary markets are still not functioning properly the lenders must have credit overlays on government programs in order to sell the pools of loans. While this in turn allows the lenders to raise more capital in order to make new loans, it does keep tighter standards of underwriting than we were used to several years ago.

10 reasons to buy a home now.

In reading Wall Street Journal I found this article quite interesting:

http://online.wsj.com/article/SB10001424052748703376504575492023471133674.html

Detailed Market Overview

Friday’s bond market has opened down slightly following mixed results from today’s important data. The stock markets initially opened flat but have since fallen well into negative ground with the Dow down 93 points and the Nasdaq down 17 points. The bond market is currently down 4/32, which should keep this morning’s mortgage rates at yesterday’s levels.

The Labor Department gave us today’s more important data with the release of June’s Employment report. It revealed a surprising 9.5% unemployment rate when it was expected to rise to 9.8%. The data showed that 125,000 jobs were lost during the month, which was close to forecasts of a decline of 100,000. It also said that average hourly earnings fell 0.1% when forecasts were calling for a slight increase.

The drop in the unemployment rate can be considered negative for bonds, but analysts feel this decline was more to unemployed workers giving up on finding a job than it was more people working. The number of payrolls lost is fairly neutral as it was close to forecasts and the declining wages reading is good news for bonds because it eases any inflation concerns that may exist. So overall, the data has failed to either impress or concern the bond and mortgage markets.

The Commerce Department released May’s Factory Orders data late this morning, announcing a 1.4% decline in new orders at U.S. factories. This was much weaker than expected but doesn't carry the influence that some of the other monthly reports do. Therefore, its impact on this morning’s rates has been minimal.

Next week is very light in terms of relevant economic reports scheduled for release. There are no important Treasury auctions or other events scheduled that are likely to affect mortgage rates. The financial and mortgage markets will be closed Monday in observance of the Independence Day holiday and will reopen Tuesday morning. There is no early close for stocks or bonds today, but I suspect this afternoon’s trading will be light as traders head home for the long weekend. Look for more details on next week’s events in Sunday’s weekly preview.