Monthly Archives: January 2015
The federal government just publicized changes to FHA loans that could save you thousands of dollars over the life of your loan, which take effect this week. President Obama recently announced a reduction of .5 percent in the annual mortgage insurance premiums (MIP) on 30 year loans which are backed by the Federal Housing Administration (FHA). FHA loans have been a popular choice for buyers with low down payments, high debt to income ratios or less than stellar credit. Here’s what you need to know about whether the choice is right for you.
How do FHA loans work?
An FHA loan is essentially a financial program that insures a mortgage through the federal government, to protect the lender in the case of buyer default. The Federal Housing Administration uses a network of FHA-approved lenders, who all may offer different fees, interest rates, and closing costs. Candidates for FHA loans are most frequently individuals with a low down payment saved, a high debt threshold, or credit scores in the 500s. Buyers apply through a local approved lender, and then pay the insurance in two parts. The first is an upfront payment equal to 1.7% of the loan – or $1,700 for every $100,000 borrowed. In addition, buyers pay a monthly premium on top of mortgage, interest, taxes, and insurance. Recent shifts have changed the way that monthly premiums are handled, from being related to Loan to Value (LTV) ratios to being ongoing over the life of a mortgage.
What does the savings entail?
At first glance, a .5% reduction in interest rates on the monthly premium don’t sound like much. But it translates to a savings of $818 per year or more than $14,000 over the life of a 30 year $175,000 mortgage with less than 5 percent down. In its announcement, the White House estimated that this change will impact 800,000 current mortgage holders and potentially enable another 250,000 people to afford to own a home.
Is an FHA loan right for you?
If you’re currently struggling to find the right option to finance a purchase with a low down payment, an FHA loan is one option to consider. Freddie Mac and Fannie Mae also introduced 3% down payment programs to the market, but they’re not as widely available yet. If you’re interested in learning more, now’s a great time to start the process by talking to an experienced lender.
Are you a buyer in Las Vegas who is considering what financial option may be right for you? Contact Sydnee Johnson today to discuss your situation and learn more about FHA loans and other low down payment financing solutions.
If you’re a first-time homebuyer, 2015 is a great time to think about purchasing your first property. In many ways, buying your first home is actually easier than ever before. New mortgage programs are allowing first time homebuyers to buy with as little as 3% down. Other programs, including VA loans and lending programs geared toward first time buyers, limit closing costs, eliminate PMI, and keep interest rates low. Here are some tips on how best to get started if you’re planning a purchase in the year ahead.
Know your numbers
Applying for a mortgage requires an intimate understanding of your overall financial picture. If you’ve never thought of buying a house before, you may not have taken a look at these issues in any kind of depth. Knowing your numbers is essential for determining if you’re a strong potential buyer and what properties you can afford. One of the most important numbers is your credit score. Start by getting a free copy of your credit report and your credit score. Look for issues that can be fixed – such as errors or small debts in collections – and clean those up. It’s also helpful to look at your debt to income ratio: how much of your income is dedicated to paying off debts. Paying off as many debts as possible is smart strategy, both to strengthen your application and overall financial position.
Consider your lending options
There are a number of different programs on the market for first time buyers. If you’re a veteran, a VA home loan offers some of the most favorable terms available to any buyer. Dedicated first time homebuyer programs make also offer distinct advantages. In some cases, the programs are available to you even if you’ve owned a home before – as long as you haven’t owned within a specific period of time. Look for these options to better understand what your monthly payments would be, how much you need for a down payment, and more.
Typically, there are three stages to the home lending process. The first is pre-qualifying. A pre-qualification will give lenders a general idea of your financial picture and will allow them to give you an idea of how much home you can afford. When you’re ready to look at properties and make offers, it’s best to get pre-approved. A pre-approval shows buyers that you’re a serious candidate and shortens the time to closing. A lender takes a harder look at your financial situation, and essentially commits to giving you a loan as long as everything checks out during the underwriting process and nothing major changes. During the pre-approval process, you’ll learn more about what specific documentation you’ll be required to show in order to close the loan.
Are you a Las Vegas first time homebuyer that is ready to make the leap? Contact Sydnee Johnson today to discuss your financing options.
Your debt to income ratio plays a big role in your ability to afford a home. If you can reduce your debt prior to buying, you can vastly improve your chances of being approved for financing. Buyers today often carry a wide range of consumer debts, from student loans to credit cards to auto loans. What many may not realize is that there are several distinct advantages to focusing on paying down your debts before applying for a mortgage. Here’s a closer look at what you need to know.
Debt to income ratio
One of the factors that a lender will consider when evaluating your mortgage application is your debt to income ratio. In essence, this means they look closely at what percentage of your total income is committed – before and after the proposed mortgage – to paying off debts. It’s considered to be an indication of whether you’re able to afford a specific home or not. Different banks and financial companies have individual “acceptable levels.” It varies depending on a number of factors, including income, what debts you have, and your total financial picture.
Different types of debt to income ratio
Lenders evaluate two potential types of debt to income ratios. The first is the front-end, or what percentage of your income will be dedicated to home expenses in the perceived scenario. Ideally, lenders are looking for a ratio that’s lower than 26 – 30%. The second is called the back-end ratio, and refers to what percentage of your income goes toward all debts including housing, student loans, credit cards, and others. The ideal total here is no more than 35 – 38% of your income. Realistically, a great credit score, significant savings, a larger down payment, and a higher income can all help shift these numbers but what’s above provides a useful guideline.
Tackle your debts to free up capital
Paying off some debts is easier than others. For example, high-interest credit card balances can cost you thousands more than the principle. A car loan may be a payment that’s possible to eliminate. It’s often harder to pay off large student loan balances; potentially, however, buyers could pay down balances and refinance to lower monthly payments. Loan consolidation may help. Paying off your debts not only helps with your lending application. It puts you in a better financial situation overall to afford home ownership, save a larger down payment, and generally weather unexpected expenses and other issues that may arise.
Are you ready to explore whether now is the right time for you to buy? Contact Sydnee Johnson to discuss your financing options and explore how your debt to income ratio may affect your chances of getting a mortgage.
Aren’t the days of the 3% down payment gone? Maybe not. Freddie Mac and Fannie Mae have announced a new mortgage program that will allow buyers to purchase a home with as little as 3% down. While the move initially drew fire from critics, the lenders were quick to assure everyone that these programs aren’t comparable to subprime lending schemes that led, in part, to recent recessions. The loans may spell good news for consumers thinking about purchasing in the year ahead. Here’s a closer look at what you need to know.
3% Down Payment Loan Programs: Good for First Time Homebuyers
Many people are speculating that the very tight regulations on homebuyers could be easing. In part, that’s true. But the new, lower down payment programs are particularly beneficial for first-time homebuyers. Recent surveys from the Federal Reserve showed that 45% of renters feel that the biggest obstacle to buying is saving the down payment; meanwhile, first-time home buyers are at the lowest level in nearly thirty years. As a result, these programs are particularly being marketed to those who have never owned a home or who haven’t owned a home in three years. Interestingly, there may also be some refinancing options for owners as long as they’re not cashing out the equity in their existing properties.
Credit Matters: Options for Buyers with Good Credit
What many potential buyers may be disappointed to hear is that good credit is important. While there has been no baseline credit requirement released, these programs are primarily geared toward buyers with good to excellent credit. It’s the combination of a strong financial history but limited liquid cash that’s the target sweet spot for these loans. However, that often describes individuals on the market that haven’t owned previously or may have rebuilt their credit from recent problem period. If you’re unsure, discuss your situation with a lender to find out if you qualify.
Interested borrowers should be aware that some of these mortgage options carry an educational requirement. The educational requirements state that prospective buyers must go through a program to help make them aware of the financial aspects and responsibilities of home ownership. In many ways, these courses are beneficial for anyone that is buying a home. But if you’re unwilling to participate for any reason, you may not be eligible for these loans.
Are you in the Las Vegas area and thinking of purchasing a home? Contact Sydnee Johnson today to discuss your unique needs and learn about the financing options that are right for you.