How to spell “F.H.A.”!!! 1/28/2011
Today’s conventional interest rates30-year fixed = 4.625% 5/1 ARM = 3.25%
Learning to suggest FHA financing as a possible option for buyers in need of flexibility will be a great tool for you. You will NOT need to know many specific details of the FHA product – that’s MY job – but it does pay to know that flexibilities do still exist – however limited they may be, these days!
The GOOD:
·FHA offers the lowest down payment possible – just 3.5%. (USDA and VA still offer 100% financing for those borrowers/properties that qualify.)
·Highest allowable debt ratio – if your buyer has too much debt, FHA can save your deal!
·Low interest rate – often lower than the best conventional!
· Flexible guidelines for receiving gifts for down payment funds – for those buyers with little cash….but PARENTS!!!
·Flexibility to deal with ‘special credit circumstances’ – FHA allows for letters of explanation that make sense of unusual circumstances on your buyers’ credit report, such as:
o Credit card payment on credit report has always been paid (and will continue to be) by dad.
o Ex-husband didn’t make the payments on this item, and we can show proof.
o Newly-separated buyer can show that soon-to-be-ex-husband is responsible for mortgage payment on marital home.
The BAD:
·FHA financing ALWAYS means mortgage insurance – for at least 5 years. I view it as the cost of the flexibilities benefiting your buyer.
·This mortgage insurance has TWO components:
o Up-front fee of approx 1% of their loan amount – this is rolled into the loan amount, so not paid out-of-pocket!
o Monthly premium is added to the buyers’ payment each month.
FHA scenario from today:
· Purchase of a primary residence, single-family home
· Purchase price - $250,000
· Down payment of just 3.5% (that’s just $8,750), of which $7,000 was a gift from family!
· Buyer had a great deal of debt, including two big cars and student loans.
· Interest rate for a 30-year fixed loan = 4.25%!!! (that’s NOT a misprint!!!)
· The same scenario with a 20% down payment and a conventional loan would have been 4.625%! However, this buyer would not have qualified for conventional due to debt ratio and lack of cash, but….FHA SAVED THE DEAL!!!
Let me know your questions about FHA financing today.
Real Estate Mortgage Network, Inc. NMLS #6521. New Jersey
R. Roy Dunn (843) 446-4663 Fax: (803) 753-9432 http://www.financingthebeach.com/
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