The Real Truth about the FHA Reform Act

The House Resolution 5072 (FHA Reform Act) was recently passed with a sweeping margin.  Voters agreed to the FHA changing mortgage insurance (MI) premiums that will increase the FHA’s capital reserve.  They claim this will benefit FHA borrowers, but we have found the real truth about the FHA Reform Act.

Currently, home buyers who want to purchase a property with an FHA mortgage have to pay a set of costs.  These costs include Up Front Mortgage Insurance Premiums (UFMIP), which will be due when you close on your property deal.  And, many applicants have had some serious budgeting issues under this program. 

Now, after September 7^th, due to the FHA Reform Act, some of your up-front payment can be added to your annual mortgage insurance premium.  They’ve decreased their financed MI and increased their annual MI.  This was set up to give FHA loan applicants more time to save for the Mortgage Insurance Payment.

This should be good news for FHA borrowers since the FHA themselves claim it will save them money.  However, the great people at TBWS Daily have found that FHA borrowers after September 7^th will actually be paying more. 

All deals closed after September 7^th will be assigned a case number, which will have a financed MI of 1.00% and monthly MI of .85% to .90%.  When TBWS Daily’s people did the math on these new numbers, they found that consumers will actually be paying more when they obtain an FHA loan.

Currently, if you get a $200,000 loan at 5.00% financing interest on a 30 year fixed loan, you’ll pay a $204,500 loan amount, giving you a payment of $1,098.00.  With the current .55% MI, you will have an additional loan payment of $94, giving you a payment of $1,192.00. 

Under the new FHA Reform Act, that same $200,000 loan at 5.00% financing interest on a 30 year fixed loan will change your loan amount to $202,000, giving you a payment of $1,083.00.  With the new MI of .90%, you will have an additional loan payment of $152, making your total loan payment $1,235.00 (that’s an extra $43/mo).  That payment can also go up if the FHA raises the MI to 1.55%,, which can give the borrower an additional payment of $261 on the same loan (that’s an extra $152/mo). 

The .90% is already set in stone and cannot be avoided when acquiring an FHA loan.  This extra $43/mo on a $200,000 loan with 5.00% finance interest may not seem like much, but it adds up to be $516/yr.  If the FHA does decide to raise the MI to 1.55%, that will cost borrowers $1,822/yr. 

The math clearly shows that consumers who acquire an FHA loan after September 7, 2010 will not save money. They will actually be paying more.

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What New Home Buyers Need to Ask the Seller

When you’re buying a new home, you can get so wrapped up in the excitement of it all that you can forget to ask many important questions for many need-to-know answers.  It would be easy if you were just handed the keys along with a list of answers to those important questions.  It would help make the transition simpler.  However, it doesn’t always work out so conveniently.  Therefore, I’ve got a list some helpful questions new home buyers should ask the seller. 

Before you move in, ask the seller the following questions: 

* Are any of the appliances still under warranty?  If so, do they still have that information? 

* What day is trash collected?

* Is there a recycling program available?

* Can they recommend companies for home services such as lawn care, pool cleaning, snow removal, etc.?

* Is there a sprinkler system? How does it work?

* Is the home pre-wired for home theater or computer network?

* Where are the school bus stops for families with young children?

* Can they recommend a trusted babysitter in the area?

* Do they have names and numbers of contractors who have worked on the home regularly in the past?

* Can they recommend any locations for dry cleaning, auto mechanics, home supplies, etc.?

The seller may not always be able to answer your questions before you move in, but any answers they can provide will be a great help when you’re in a new city.

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Questions to Ask Before Purchasing a New Home

As interest rates on the 30-year fixed-rate mortgage dipped to a 38 year low, many consumers began to consider purchasing a new home or refinancing their current home.  In this blog, I have some Q & A’s that will help you decide if now is the right time to purchase a new home or refinance your current one.

With interest rates being the lowest since 1971, the tax credit and the tax extension, many people around the nation are interested in purchasing a home and ready to sign on the dotted line.

What questions you should ask when you’re ready to purchase or refinance a home:

Q: How long are the interest rates expected to stay this low?

A: No one can really tell, but many are expecting the lending landscape to change during 2010, increasing interest rates. 

Q: Why are rates so low?

A: The Federal Reserve has been purchasing mortgage-backed securities which are guaranteed by Freddie Mac, Fannie Mae and Ginnie Mae in a great effort to stabilize the housing market.  In turn, this has made homes more affordable for consumers.

Q: Why do different surveys come up with different average mortgage interest rates?

A: This depends on the lender, the survey, the rates quoted at the time, the application rate, etc.  Some surveys will also consider the points paid to secure the rate.

Q: Is now the best time to buy a home?

A: This will depend on your personal situation.  Several factors are working in the favor of the homebuyer right now such as low interest rates, reduced home prices, the extended tax credit and a tax expansion.  There are also minor improvements showing in the real estate market and these improvements are expected to get better through 2010. 

Breezing Through the Home Buying Process

It can be an overwhelming process to think about buying a home in today’s economy.  Especially when you hear the media report mortgage “doom and gloom” daily.  However, as a real estate professional, I am here to tell you: don’t let all that doom and gloom talk scare you.  You can still purchase a home for very little to no money down.  And yes, it can be done in the middle of today’s crazy real estate market.  It just takes some careful planning and preparation to breeze right through it.

Begin by educating yourself as much as possible.  You want to learn the role of each party that will be involved.  Search what loan options are out there and what the approval process is.  It also never hurts to ask your real estate professional what to expect regarding time frame, possible delays and costs.  They have endless resources they can share with you.  Therefore, don’t hesitate to ask their advice or opinion.

Always be aware of what your credit score is before applying for a loan.  You can get a free credit report online annually at www.freecreditreport.com.  This website will also give you your credit score, which is very important to know.   There are also several other websites offering free credit reports annually.   Your loan will depend on your credit score.  After reviewing your credit report, you should then resolve any outstanding credit issues.  Pay off any delinquent accounts and have letters explaining to the lender about the issues.  If you don’t have any issues, awesome!  You’re one step ahead of the game.

Now, plan your budget.  While planning your budget, be realistic.  Review your spending habits and cut back where necessary or possible.  Also, set some emergency money aside for the future.  This is just plain out smart for everyone to do.  You will also need some cash, even if you are doing a “no down payment” loan.  You will need money for moving expenses, earnest money, homeowner’s insurance, inspections, etc.  And, you will have to let your lender know exactly where your money comes from.  So, have your bank information ready.  This includes your last two bank statements.

Other forms of paperwork that are usually required include all forms of income, any assets, anything that may affect your credit (such as credit cards or car loans), divorce papers or bankruptcy papers.  Your loan officer will have a checklist for you to follow.  But, having most of these items beforehand will make your job easier.

Never make any major purchase during your loan process.  This could seriously affect your home loan or halt it completely.  And always stay positive through the process.  Your reward in the end will be worth it.  Just remember, the more prepared you are, the smoother you will breeze through the process.  And never hesitate to seek advice from your real estate professional.

Hopefully, these tips will help your loan process be a breeze.  With the right plan of action, the sky is the limit.

Realtor® Cheryl Westwood – Lake Havasu City Real Estate

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