What’s the Cost of FHA Financing A Home?

loan_application_clip_art_24699FHA Loans are used to help more people buy homes.  More specifically, they are easier to qualify for.  They are available to borrowers with credit scores as low as 580 and only require a minimum 3.5% down payment (can be higher for lower credit scores) for buyers that are short on cash. FHA requires that the property be in good condition and are generally defined as follows:

  • Health and safety issues
  • Protecting the security of the property, and
  • Structural soundness of the property.

Although FHA-insured mortgages come at a higher cost than a conventional mortgage, this expense could be worthwhile for those who want to own a home and can’t qualify for a conventional mortgage.  FHA loans are insured by paying FHA mortgage insurance.  Unlike conventional loans that allow the seller to contribute 3% of the purchase price towards the buyers closing costs (should cover most, if not all, of the buyer’s closing costs), FHA buyers can ask up to 6% in closing costs.  The main reason for the higher closing cost is the FHA Mortgage Insurance, which is an upfront premium of 1.75% of the loan amount (Could be paid with seller paid closing costs).  In addition, the borrower is going to pay an annual premium (typically ranges between 0.45% and 1.05% of the loan depending on the loan amount).

FHA Loan Example

Here is a real world example of $234,000 home purchase that I recently sold with a FHA Loan:

Loan Payment
Here are the following costs associated with the FHA loan:
  • The upfront premium of 1.75% of the loan amount (in this case, the amount is $229,761) is $3,951.68.
  • The monthly FHA-insurance premium is $158.83 per month, or $1,905.96 annually (or 0.83% of the loan amount).

In this case, the closing costs were $12,367.45 or about 5.29% of the purchase price. Although the seller provided a seller  credit for a portion of the closing costs, the purchaser still had to come out-of-pocket for closing costs (i.e. escrows for both homeowner’s insurance and property taxes, HOA assessments, etc.).   It should be noted that the borrower applied the 3.5% minimum down payment (or $8,190) and prepaid the for the appraisal.

In the Real Estate Market?

KW1784102f20KW.jpgYou should consider using a realtor.  I could save you money especially with new home builders and it does not cost you anything.  So why not? Let me save you money!!!  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty a.t 2119 W Brandon Blvd, Brandon, Florida 33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link

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How Much Home Can You Afford?

cropped-img_41401.jpgAs a general rule, most future homeowners can afford to mortgage a property even if it costs between 2 and 2.5 times the gross of their income. Under this particular formula, a person that is earning $100,000 each year can afford a mortgage up to $250,000. However, a borrower should evaluate their finances and how much they are will to pay monthly when making the decision.  Knowing the mortgage size and approximately monthly payment that can be handled also helps the borrower narrow down the playing field so that precious time is not wasted in touring homes that are out of the price range.

Debt-To-Income Ratios and Down Payment

There are several ratios that lenders consider when determining how much money a person can borrow for a mortgage. It’s a good idea to know what factors lenders consider when determining how much mortgage that borrower can get.  There are three main factors, which are briefly described as follows:

  • The percentage of yearly gross income that is dedicated to making the mortgage each month is called the Front-end Ratio (mortgage payment, which are: interest, principal, insurance, and taxes). Generally these items should not exceed 28% of the borrower’s gross income, but some lenders allow the borrower to exceed 30% and some even allow 40%.
  • The debt-to-income ratio, which is also called the “Back-End Ratio” measures what percentage of income is required to cover debts (mortgage payment and such debts as child support, car payments, other loans, and credit cards). The debt-to-income ratio should not exceed 36% of the gross income. In some areas that have higher home prices, it is hard to stay within 36% with lenders allowing the debt-to-income ratio to go as high as 45%, which could increase the interest rate.
  • Most lenders require a down payment of around 20% of the price of the home. This minimizes the need for property mortgage insurance (PMI) requirements, which increases the mortgage payment.

The down payment also has an impact on the monthly mortgage payment and on the front-end and back-end of the loan. More expensive homes can be purchased with larger down payments.

Other Considerations

Just because you can afford a home based on these factors does not mean you should finance the maximum loan amount.  Here are a few questions to ask yourself:

  • What is your life style?  In other words, do you have an active life style that requires a lot of your resources (or money)?
  • How long are you going to stay in the home or if you are expected to increase your income can determine if a fixed or variable rate loan is appropriate.  A variable rate mortgage would start at a lower rate than a fixed rate mortgage.  The downside is the potential of increases in interest rates over time.

Pre-qualification Vs. Pre-approval

Ideally, a potential home buyer would talk to a lender to get either a pre-qualification or a pre-approval letter.  These are two different types of letters, which are defined as follows:

  • Pre-Qualification Letter are typically less intensive than a pre-approval letter and involves a brief conversation without document support.
  • Pre-Approval Letter is much more detailed and requires a  review loan requested documents (i.e. financial statements, credit reports, etc.) as well as proof of a down payment.

Conclusions

The Tampa Bay MSA area experienced large growth in residential housing during the residential “boom” period of the early to mid 2000’s. Since the beginning of 2013, the market has shown increases in both pricing and sales figures.  These figures continue to show improvement.  However, Hillsborough County is becoming more built out with less vacant land available for development.  Since most people will not buy homes with cash, I hope this helps you getting your new home with a mortgage and realize the dream of home ownership.

In the Real Estate Market?

KW1784102f20KW.jpgYou should consider using a realtor.  I could save you money especially with new home builders and it does not cost you anything.  So why not? Let me save you money!!!  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty a.t 2119 W Brandon Blvd, Brandon, Florida 33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link

 

Popular Loan Types and Your Buying Power

money-7There are three types of loans (conventional, FHA and VA loans) that are popular in the Tampa Bay Market.  As a realtor, it is important to help the prospective home buyer with a general ideal of what they can afford (AKA their buying power) in lieu of a pre qualification from a lender.

Traditionally, lenders require 20 percent of the home’s purchase price as a down payment.  However, many lenders now offer loans that require less than 20 percent down with some as low as 5 percent on conventional loans. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay.  There are three primary loans that are seen in the Tampa Bay market, which include conventional, FHA, and VA Loans.

Conventional Loans

loan_application_clip_art_24699Conventional loans are fairly conservative loans and are typically used by the home buyers with higher down payments and better credit.  These loans come in a variety of options (Adjustable and Fixed Rate Mortgages) and terms.

According to Credit.com, conventional loans are slightly more restrictive.  Buyers with a loan-to-value ratio above 90% can ask a seller to pay 3% of the purchase price. If the loan-to-value-ratio is between 75% and 90%, sellers can pay up to 6%. Buyers with a loan-to-value ratio less than 75% can ask sellers to contribute up to 9%. Private mortgage insurance (PMI) is applicable to conventional loans under 80%. PMI can be removed once loan-to-value ratio (LTV) reaches 80%.

Unlike PMI, FHA’s MIP lasts for the life of the loan.  PMI is lower than MIP, which is another advantage of a conventional loan.

FHA Loans

moneyhands_217w_gifLoans backed by FHA are popular because the FICO score requirement of 580 is lower than what is required for conventional mortgages and the down payment can be as low as 3.5%.  The Hillsborough County (Tampa) loan limits is currently $271,050 for a single family home.  This is a very good option for most people with bad credit and/or a small down payment.  Keep in mind that any offer should include seller paid some of the buyers’ prepaids, closing costs, and non-allowables.  FHA rules do allow sellers to give up to 6 percent of the home’s purchase price for closing costs.

FHA Requires a Mortgage Insurance Premium (MIP) as part of your monthly mortgage payment is what makes the reduced down payment on your mortgage possible.  FHA uses these payments to insure your lender against losses if the loan goes to foreclosure, which limits the liability of the lender.  As of January 26, 2015, The MIP is calculates on a base loan amount times (.85% for 30 year term or 0.45% for 15 year term) divided by 12 months.  In addition to MIP, FHA’s Mutual Mortgage Insurance Fund (MMIF) has a rate to 1.75% at the loan closing.  Since these loans are insured for the life of the loan, their interest rate is typically better than conventional loans.  This applies regardless of the amortization term or LTV ratio.  The following is a FHA Loan example:

FHA Loans

Please note that this is an example and parameters could and can change.  I suggest that you contact a mortgage professional for more information.

VA Loans

IMG_4140Almost all active-duty military and veterans qualify for Veterans Affairs mortgages including aany reservists and National Guard members and spouses of military members who died while on active duty or as a result of a service-connected disability.  Unlike FHA loans, VA loans are guaranteed.  There is a funding fee that ranges from 1.25% to 3.3% of the loan amount.  Borrowers can qualify for 100% financing. VA loans allow the seller to pay all of the buyer’s mortgage-related closing costs and up to 4% of the purchase price in concessions, which can cover things like prepaid taxes and insurance and even paying off collections, judgments or leases at closing.  I have sold new homes where the lenders actually paid the buyer at closing.

Thinking of buying or selling real estate?

KW1784102f20KW_thumb.jpgYou should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Lithia (Fishhawk Ranch), and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

Residential Mortgage Process

Mortgage-debtSince there are a lot of real estate transactions involve loans, potential home owners should understand the residential mortgage process.   Although I’m not a mortgage broker/lender, the mortgage process is explained as follows:

  1. Pre-Qualification – “Pre-qualification” occurs before the loan process actually begins, and is usually the first step after initial contact is made.  In a pre-qualification, the lender gathers information about the income and debts of the borrower and makes a financial determination about how much house you may be able to afford.  We also refer to this as buying power.
  2. Application – Getting pre-approved is the next step, and it tends to be much more involved.  Borrowers complete the initial application and supply all of the supporting documentation.
  3. Processing – The loan processer reviews the file and makes sure that all the items that the underwriter will need is included in the file prior to submitting.  This typically includes having the property appraised prior to going to underwriting.  The appraisal should be at or above the sales price.
  4. Underwriting – The underwriter completely analyzes the file and makes a determination of the loan based upon industrial guidelines whether to approve, suspend, or deny the loan.  If the file receives “conditional approval”, the loan officer will contact the borrower and address the underwriter’s issues.
  5. Clearing Conditions – Any additional documentation required by the underwriter are sent to underwriting.  Once this additional documentation is received and reviewed, underwriting issues the “Clear to Close” status.  At this time, the closing ate and time is determined with the closing agent or attorney.
  6. Closing – Once you get the “Clear to Close” from the underwriting department, the closing agent or attorney will get instructions including all fees and documentation to fund the loan.  Once the documents are signed, the documents are sent back to the lender for final approval.  It should be noted that most lenders have a document that states if there are any documents are missing that the borrower complete those documents.

KW1784102f20KWThinking of buying or selling real estate?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address isalanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

Real Estate Prices in Perspective in the Tampa Bay Market

BourneHome prices are still very affordable in the Tampa Bay Market.  This is especially true for Spec” (speculation) homes, which are often the best places to get the best deals.  These homes are built by builders without an intended purchaser in mind (Hence the builder is speculating that they will find a builder to buy the home). For example, I have client that just purchased a new 3,210 square foot, five-bedroom, three-bath, three-car garage home for about $260,000 (a reduction of almost $20,000), or $81 per square foot.  This home was purchased with a VA loan, which was 100% financed with a fixed interest rate of 3.75% with a payment of only $1,455 per month (including principal, interest, homeowner’s insurance, property taxes, and CDD fees totaling $262 per month).  The only additionally fee that is not escrowed would be a quarterly HOA of $184.   As of May 2015, the average rent for a two-bedroom apartment is $1,161 per month.  The average apartment rent over the prior 6 months in Tampa has increased by $138 (13.4%).  Although the amount of rent paid for two-bedroom apartment is lower than house payment, the home is considerably larger with three additional bedrooms.  Since this is a new home from a new home builder has some advantages over a buying a presale. The new construction advantages include home warranties, lower building insurance, sales incentives (ranging from upgraded kitchens to bathrooms) and closing costs (most (if not all) of the closing costs are included if the builder’s approved lender is used).

Let’s put price into perspective in today’s real estate market and how it can help you in the long run.  It seems that everything has been increasing in price faster than you are making money.  The following exhibit illustrates the how some key items have increased:

Affordability in Perspective

Item 2008 2013 % Change
New Car $27,958.00 $31,352.00 12%
Gas $2.05 $3.80 85%
Hamburger Meat $3.99 $4.68 17%
Wages $40,523.00 $44,321.00 9%
National Avg. Home Price $238,880.00 $289,500.00 21%
Mortgage Rate 6.03% 3.98% -34%
Monthly P&I Payment $1,200.37 $960.18 -20%
SOURCE:  http://www.thepeoplehistory.com and bankrate.com

 

As you can see in the exhibit above, today’s interest rates are one of the best benefits that we can take advantage of now!!!  If you buy a new home or an updated  presale with a warranty the risk is further reduced for costly repairs and/or remodeling costs.  You can even trade up for the same payment.  So, interest rates matter!!!

Thinking of buying real estate?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address isalanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

Closing a New Loan on Home is Going to Be Longer Now!!!

photo 2Do you remember the phrase that “Cash is King”?  Well that is more important than ever now.  That is because you will not necessarily need these new closing disclosure and loan estimate in lieu of the HUD-1 settlement statement and the good faith estimate.  Additionally, an appraisal is not required, but recommended for cash transactions.

The closing disclosure and loan estimate are required to be completed three days prior to closing. If al the parties (i.e. lenders, title agents, buyers and sellers) do not agree with these new forms, a new three (business) day period can kick in and delay the closing.  You have until October 3 to get familiar with the new forms and using the new closing procedures. Although these forms are made to make the closing costs easier to understand, it could delay closing on homes in the future.

On January 1, 2015, the entry barrier for both Certified Residential and General Appraisers increased to a Bachelor’s degree or higher (in any field) from an accredited college or university.  These requirements are effective for real property appraiser credential after January 1, 2015.  When you also include the requirements for both VA and FHA appraisals, the pool of available appraisers is limited.  For example, a VA appraisal is allowed only 10 business days to be completed.  With a limited number of available and qualified appraisers, this could become harder and harder to meet.

Although the adopted regulations are intended to help potential property owners, it is hard to imagine that we are not going to see delays in closings.  Cash is king!!!

Thinking of buying real estate?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address is alanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.

What to Expect in Getting Home Financing!!!

Mortgage-debtAn extremely common question for many first-time homebuyers to ask is: “How long will it take to buy a home?” Since buying a home is a multi-step process, the answer is “It depends on several factors”:

  • Get preapproved with an experienced lender. This allows the lender a “head start” to getting your financing together. Ideally, you would get approved prior to looking for your dream home to determine your buying power. (i.e. you don’t want to view homes that you cannot afford)
  • Make sure both the buyers and sellers are on the same time table and agree on a closing date.
  • Expect appraisals to take as long as 10 days depending on type of loan. (i.e. appraisers for VA and FHA are not as common as appraisers for conventional loans.)
  • Both VA and FHA loans could require repairs to be completed by the seller that could delay loan approval and a closing. Thus, this does not postpone new home sales.
  • The final step is underwriting. If an underwriter needs additional documents or notices an eligibility problem for a particular loan, the closing date could change.

It is very difficult to predict how long the purchase process will take. Here is a general outline for what to expect by the most popular loan types in the Tampa Bay market:

  • Cash transactions can close as fast as two weeks.
  • Conventional loans typically can close in 30 days.
  • Most VA loans close in 30 to 45 days. I have closed VA loans as short as two weeks on new construction.
  • The process of an FHA loan can take as short as 10 days, and typically not much more than 30 days.

Here is what you can do:

  • Get preapproved (very important)
  • Work with an experienced lender that deals
  • Choose a good agent to tell you what to expect.
  • Select a home in good condition to limit the time to get your loan.  New homes can close faster than resales for a variety of reasons outlined above.

Thinking of buying a new home?  You should consider using a realtor.  If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty at 2119 W Brandon Blvd, Brandon, Florida  33511).  As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota.  The Keller Williams offices of  ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico.  My email address isalanlane66@gmail.com, or call me at 813.205.9280.  If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link.