FHA LOANS

What Is an FHA Loan?

An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.
The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially with first-time home buyers.

What Are the Advantages of FHA Loans?

Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. An FHA down payment of 3.5 percent is required. Borrowers who cannot afford a traditional down payment of 20 percent or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario. Another advantage of an FHA loan is that it can be assumable, which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.

What Are the Disadvantages of an FHA Mortgage?

You knew there had to be a catch, and here it is: Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront – or, it can be financed into the mortgage – and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.

Upfront mortgage insurance premium (MIP) – Appropriately named, this is an upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.

Annual MIP (charged monthly) -Called an annual premium, this is actually a monthly charge that will be figured into your mortgage payment. It is based on a borrower’s loan-to-value (LTV) ratio, loan size, and length of loan. There are different Annual MIP values for loans with a term greater than 15 years and loans with a term of less than or equal to 15 years.Loans with a term of greater than 15 Years and Loan amount < or =$625,000. • Loans with a term of greater than 15 Years and Loan amount < or =$625,000 1. LTV less than or equal to 95 percent, annual premiums are .80% 2. LTV above 95 percent, annual premiums are .85%. • Loans with a term of greater than 15 Years and Loan Amount >$625,000
0. LTV less than or equal to 95 percent, annual premiums are 1.00%
1. LTV above 95 percent, annual premiums are 1.05%
• Loans with a term of 15 years or less and Loan amount < or =$625,000 0. LTV less than or equal to 90 percent, annual premiums are .45% 1. LTV above 90 percent, annual premiums are .70% • Loans with a term of 15 Years or less and Loan Amount >$625,000
0. LTV less than or equal to 90 percent, annual premiums are .70%
1. LTV above 90 percent, annual premiums are .95%

Example (for LTV less than 95 percent on a 30 year loan): $300,000 loan x 1.30% = $3,900. Then, divide $3,900 by 12 months = $325. Your monthly premium is $325 per month. The Mortgage Insurance will be in your payments for the entire loan term if your LTV is >90%. If your LTV is = or < 90% ,the Mortgage Premium will be for the mortgage term or 11 years, whichever occurs first. Single family home mortgages with amortization terms of 15 years or less, and a loan-to-value (LTV) ratio of 78 percent or less, remain exempt from the annual MIP. FHA Mortgage Insurance Duration • The duration of your annual MIP will depend on the amortization term and LTV ratio on your loan origination date. Please refer to this chart for more information:

JUMBO LOAN

You could save big with a jumbo loan

With a jumbo loan, you’ll get low rates for your big loan. Offering a choice between fixed or adjustable rates, our jumbo loans offer maximum flexibility for home financing for larger loans.

• Do you need a mortgage between $417,000 and $3,000,000?

• Do you need flexible rates and terms?

• Are you looking for quick turn-around for your jumbo purchase or refinance?

If you answered “Yes” to any of these questions, a jumbo loan might be right for you, so call a Home Loan Expert at (888) 900-4342, or fill out the form to get started now!

Jumbo loan features

• Refinance or purchase up to $3,000,000, or do a cash out refinance of up to $500,000 for your next big home project.

• Credit scores as low as 700 may qualify.

How the jumbo loan works

• Any loan over the conventional loan limit ($417,000) is considered a jumbo loan.

• Loan limits vary by county, and rates depend on where your property is located.

• Your actual payment will vary based on your situation and the current interest rates when you apply.

• Pay your mortgage at any time without pre-payment penalties.

30 Year Fixed

• Do you plan to stay in your home for many years?

• Do you prefer a consistent mortgage payment for budget planning?

• Does your peace of mind depend on a payment that never changes?

Benefits:

30-year fixed-rate mortgage qualification requirements

• On an FHA loan eligible to Refinance up to 97.00% of your primary home’s value (Rate and Term Only)

• On an FHA loan buy a home with as little as 3.50% down payment (Primary Residence Only)

• Loan amounts from $50,000.00 to $3,000,000.00

15 Year Fixed

15-year fixed-rate mortgage qualification requirements

• On an FHA loan eligible to Refinance up to 97.00% of your primary home’s value (Rate and Term Only)

• On an FHA loan buy a home with as little as 3.50% down payment (Primary Residence Only)

Adjustable Rate Mortgage

An ARM is a mortgage with an interest rate that may vary over the term of the loan — usually in response to changes in the prime rate or Treasury Bill rate. The purpose of the interest rate adjustment is primarily to bring the interest rate on the mortgage in line with market rates.

Mortgage holders are protected by a ceiling, or maximum interest rate, which can be reset annually. ARMs typically begin with more attractive rates than fixed rate mortgages — compensating the borrower for the risk of future interest rate fluctuations.

Choosing an ARM is a good idea when:

• Interest rates are going down

• You intend to keep your home less than 5 years

ARMs have the following distinguishing features:

• Index

• Margin

• Adjustment Frequency

• Initial Interest Rate

• Interest Rate Caps

• Convertibility

Index

An adjustable rate mortgage’s interest rate increases and decreases based on publicly published indexes. ARMS are based on different indexes including:

• United States Treasury Bills (T-bills)

• The 11th District Cost of Funds Index (COFI)

• London Interbank Offering Rate Index (LIBOR)

• Certificate of Deposit Indexes (CODI)

• 12-Month Treasury Average (MTA or MAT)

• Cost of Savings Index (COSI)

• Bank Prime Loan (Prime Rate)

Margin

Margin is a fixed percentage amount that is pointed added to the index – accounting for the profit the lender makes on the loan. Margins are fixed for the term of the loan.

interest rate = index + margin

Adjustment Frequency

Adjustment frequency reflects how often the interest rate changes – also known as the reset date. Most ARMs adjust yearly, but some ARMs adjust as often as once a month or as infrequently as every five years.

Initial Interest Rate

The initial interest rate is the interest rate paid until the first reset date. The initial interest rate determines your initial monthly payment, which the lender may use to qualify you for a loan. Often the initial interest rate is less than the sum of the current index plus margin so your interest rate and monthly payment will probably go up on the first reset date.

Interest Rate Caps

Interest rate caps put limits on interest rates and monthly payments.

Common caps:

Initial Adjustment Cap

An initial adjustment cap limits how much the interest rate can change at the first adjustment period.

Example:

If your ARM has a 1% initial adjustment cap, your interest rate may only increase or decrease by a maximum of 1% at the first adjustment period.

Periodic Adjustment Cap

A periodic adjustment cap limits how much your interest rate can change from one adjustment period to the next. Usually a six-month adjustable rate mortgage will have a one percent periodic adjustment cap while a one-year adjustable rate mortgage will have a two percent periodic adjustment cap.

Example:

If your loan has a 2% periodic adjustment cap, your interest rate may only increase or decrease by a maximum of 2% per adjustment period.

Lifetime Cap

A lifetime cap sets the maximum and minimum interest rate that you may be charged for the life of the loan. Most ARMs have caps of 5% or 6% above the initial interest rate.

Example:

If your loan has a 6% lifetime cap, your interest rate may only increase or decrease by a maximum of 6% for the life of the loan.

Initial adjustment caps, periodic adjustment caps, and lifetime caps make up an adjustable rate mortgage’s cap structure, and are usually represented as three numbers:

Example:

1/2/6 — Initial adjustment cap is 1 %/ periodic cap is 2% / lifetime cap is 6%.

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