Thursday, April 10, 2014
Understanding FHA-Insured Loans
Understanding FHA-Insured Loans
One of the few blessings to come out of the Great Depression was the FHA-insured loan. Although, contrary to what many think, it wasn't created to help low-income buyers get into homeownership. Just as during our recent Great Recession, during the Depression foreclosure rates skyrocketed, leaving lenders in the lurch. The FHA-insured loan was created to protect lenders from losses should the economy once again tank.
That said, the borrower does receive benefits from the loan. First, she benefits from the meticulous appraisal of the home, and second, from the low down payment requirements and attractive interest rates offered by lenders.
Eligibility Requirements
Although the Federal Housing Administration won't be loaning the money to you directly (you'll see a conventional lender for that), they'll take a look at your credit profile to determine whether they want to offer insurance on your loan.
Recent FHA changes call for a manual review of applicants with credit scores below 620 and debt-to-income ratios of 42 percent or higher. While these conditions don't automatically disqualify a borrower, it does decrease the number of applicants who qualify.
Statistics show that successful FHA applicants in August of 2013 had an average FICO score of 691, according to FoxBusiness.com. Unsuccessful applicants had an average FICO score of 667.
Remember, the lender may have stricter requirements, so it's always a good idea to take a look at your credit reports, fix any errors, and pay down some of your debt before applying for a mortgage.
The Down Payment
American homebuyers love the low down payment aspect of the FHA loan. Although lending criteria has tightened since the economic downturn, down payment requirements are still low – as low as 3.5 percent of the purchase price of the home.
An applicant with a FICO score lower than 579 may have to pay a 10 percent down payment, while those with higher scores – assuming they have adequate income and meet other loan requirements – typically qualify for the lower down payment.
Mortgage Insurance
Most homeowners know what PMI is – Private Mortgage Insurance. It's that policy they pay for but derive no benefit from. PMI protects the lender in case the borrower defaults.
FHA-insured loans also mandate mortgage insurance, but it's known as the Mortgage Insurance Premium (MIP) instead of PMI. As with PMI, FHA at one time allowed borrowers with a 78 percent loan balance to cancel their mortgage insurance premium. As of June of this year, however, that changed.
New FHA borrowers (since June 3, 2013) with low down payments (a starting loan balance of more than 90 percent of the value of the home) must pay for MIP as long as they have the loan. Borrowers with balances lower than 90 percent can choose to stop paying for MIP after 11 years.
To top it off, in April of this year FHA announced that they would be raising MIP premiums by 10 basis points, making the FHA-insured loan far less attractive than it once was.
Before settling on an FHA-backed loan, ask your mortgage broker to run scenarios comparing it with conventional loans as well as Fannie Mae's "My Community" loan program and Freddie Mac's "Home Possible" mortgage. You may find a better deal than FHA. provided by Todd Flowers
Retirement: Is This a Good Time to Downsize?
Moving into a smaller home – downsizing – isn't just a way to save creaky knees from the two-story monster where you raised your family. It's also a way to free up equity to use during retirement.
Money Bags
Although Americans lost a substantial amount of home equity during the housing crisis, older Americans fared better than most. In fact, in 2010 the median home equity for those between the ages of 55 and 64 was $100,000, according to Reuters. Americans aged 65 and over did even better; they typically claimed $135,000 in home equity.
This is money they fully intend on tapping into during retirement, and downsizing into a smaller home is one way to access that money.
Attitudes
Only 29 percent of baby boomers between the ages of 50 and 64 plan on moving within the next five years, according to Reuters, and only a fraction of them plan on downsizing.
"Downsizing is scary, and it's a major event in life, like having an empty nest after the children leave," Gerontologist Karen Owen-Lee told the Salt Lake Tribune.
Attitudes change as we age, however. Of the 14 percent of folks over 65 who say they'll move within five years, 67 percent plan to make that move to a smaller home.
Pros and Cons
Like any move, downsizing requires careful consideration, consultation with your financial advisor and a solid plan.
Although often impossible to achieve, perfect timing comes in handy as well. Timing the sale of your current home to coincide with a seller's market, when sales prices are up, helps you hang on to that hard-earned and much-needed equity. Selling in a down market, on the other hand, may result in a loss.
One other disadvantage to selling your current home is all the fees associated with the sale: Real estate commissions, mortgage fees and concessions to buyers can all add up to a significant amount of money. If downsizing into a condo, you'll need to consider HOA fees, while moving to a more expensive community will bring additional costs as well.
Advantages to downsizing in preparation for retirement, or to save more money during retirement, include the obvious: a lower mortgage, and thus lower payments. If you have enough equity in your current home, you may be able to purchase the new home outright, thus eliminating mortgage payments completely.
Utility bills will be lower with less square footage to heat and cool, and a smaller lot may allow the retiree to avoid having to pay a landscape maintenance company. If the new home is in a walkable area, you'll save money on gas and wear and tear on the car.
Make a Plan
One of the most important steps to downsizing is looking for that window of opportunity - a time when the market is robust for sellers yet sales prices aren't so high as to price you out of the market on your new, smaller home.
While waiting for that opportunity, create a plan that includes downsizing to a smaller home, but also consider a less expensive location to get maximum bang for your retirement buck.
Instead of looking at cities or towns with strong job markets (a strong job market tends to increase home prices), look at smaller cities. This doesn't necessarily mean you'll need to move far from friends and family, claims Richard Satran of U.S. News and World Report. "Even overheated housing markets are ringed by pockets where home prices are more affordable," he said.
The median move for folks over the age of 65 is 71 miles from their current home, Satran said, but 25 percent of them end up over 1,000 miles away. A great source for researching cities that might fit your bill is AARP. They list the best cities if you crave sunshine, the most affordable cities, best cities abroad, and even the most quirky cities in which to retire.
Once you narrow down where to live, the rest of the plan is easy. Determine what is most important to you in a neighborhood or community. Walkability? Proximity to recreational facilities? With a list of your wants and needs, a good real estate agent can help you find the ideal home in a community that fits your lifestyle.
Deciding whether to downsize is a personal choice. It requires taking into consideration your current financial position and the lifestyle you hope for in retirement. Seek the counsel of financial and real estate experts before making any firm decisions. Information brought to you By Todd Flowers
Looking for that home for sale on James Island (Charleston) SC. Priced to move, this Ranch style home located next to a golf course will not last long. Open House April 12th and 13th 2014 from 2-4 both days. Provided by Todd Flowers
50+ Realtor
Looking to downsize. Kids are all grown up. You look around and discover that your house is just to big. If you are thinking of downsizing you need a trusted Realtor. I'm a retired law enforcement officer. As a Realtor I not only specialize in helping 50+ citizen, I have taken it upon myself to get trained, but also recognized by other Realtors as having the knowledge and training.
To speak with a trained Realtor that meets your need, contact Todd at 8435806589
Flowers Lowcountry Real Estate
FLRE
To speak with a trained Realtor that meets your need, contact Todd at 8435806589
Flowers Lowcountry Real Estate
FLRE
Deal of the DAY. Foreclose list of Homes for sale on Johns Island, Kiawah Island, and Seabrook Island. Always a deal to find. Why not save some money and move into your dream home. Provided by Todd Flowers
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Looking for that place to escape to? Looking for that condo? Let someone else take care of the yard work. You want to live at beach and enjoy the fun. Provided By Todd Flowers #realestate #follybeach #SC
http://www.flowerslowcountryrealestate.com/listings/areas/71963/propertytype/CONDO/listingtype/Resale+New,Foreclosure+Bank+Owned,Short+Sale/
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