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Tuesday, Nov 23, 2010

Using Mortgage Calculators To Find Big Mortgage Savings

All too often home buyers just use mortgage calculators to estimate what the payments may be on a new home. Mortgage brokers and banks are also happy for potential buyers or customers to just focus on the monthly payments an not on the real cost of financing a home. This is as the real amount of interest paid over the life of a loan can be a pretty big and scary number to most. Thankfully home loan rates have come down, but it still pays to look at the real totals and see where you can save big. This applies to both home buyers and those contemplating refinancing their home. If you spend more than a few minutes using a mortgage calculator you can easily weigh out the pros and cons of different programs and rate options.

For home buyers, take a look at the differences below that just a one or two percent difference can make to you. As an example, using a $350,000 loan amount see how it stacks up:

At this weeks average 30 year fixed rate of 5.12%, with a monthly mortgage payment of $1,904 you would pay a huge $335,666 in interest alone over the term of the loan (enough to buy another home)
However getting your rate down to 4% and even paying the loan off in 25 years, your monthly mortgage payment would only be $1,847 and just $204,228.68 in interest.
If you could afford just $216 per month more you could actually have your loan paid off in 20 years and save a whopping $176,642 in interest!

If you think this is a significant difference just imagine how many more hundreds of thousands of dollars you are paying interest if you currently have a home loan in the 7% range from a few years ago. Lower rates are normally offered on shorter term loans or you can ask your lender about buying down the rate. This is done in 'points', based on a percentage of the loan amount. 1 point = 1 percent. Clearly in this example if you could buy down the rate for $3,500 it could mean the highest return of any investment you could ever make in your life time. Yes, mortgage paperwork can be confusing, but be sure to ask about all your options and think about the long term as well as what monthly payment they are offering you.

Tuesday, Nov 16, 2010

FHA Changes Mean Loss of Foothold on the Dream of Home Ownership

In recent news, when we hear words and phrases like "sweeping changes" and "bailout" we think of large privately-held companies, however recently, these words are being applied to the FHA Mortgage. Once thought to be a bastion of stability, even in the tumultuous housing market, the FHA has faltered as of late and now more than ever, people are scrambling for any scrap of news they can find about its current state.

So what are these sweeping changes and what do they mean for homebuyers (particularly unprepared first time home buyers)? Well, quite frankly, these sweeping alterations will have quite an effect on the "American dream" that spurs so many to rush into home ownership.

From the potential buyer's perspective, the new guidelines for FHA borrowers and sellers will have the effect of placing home-ownership even farther out of reach. This is bad news for both sellers who had hoped that the moderate interest rates would lure more borrowers/buyers and for buyers who were already struggling to meet the old guidelines.

Potential buyers, especially those whose credit scores are weak, could barely squeak by the old regulations. Now, buying a home will be more difficult. First, mortgage insurance fees, which are the fees that the buyer pays at closing--will step up from 1.75 percent to 2.26 percent. Sure, that doesn't sound like much cash on first glance, but consider that in the context of a moderately-priced home of $140,000. A big difference, especially for a cash-strapped family who plunked down a heft amount of savings for the home already.

Second, down payments will be leaping up, from 3.5 percent to 10 percent for those with credit scores under 580. Third, financial help from sellers is being cut from 6 percent of the mortgage amount to 3 percent. The predictable result: fewer buyers in the market will result in fewer homes sold.

The stability of the FHA, which was created in response to another financial catastrophe, the Great Depression, is faltering after decades of regulation problems. Like other government programs that came out of the Depression, this one was aimed at reviving an economic sector but over time, as consumption patterns changed and more people were allowed to take advantage of costly elements of such programs, they ran their course-they were sucked dry. Ten years ago it would have been impossible to think this could happen but the fact is, these major changes in the FHA mean dramatic changes for new home buyers and the American taxpayer.

Tuesday, Nov 9, 2010

Accounting for the Decline: The Past and Present Life of the FHA

The FHA was originally conceived in 1934 to stabilize the housing market following a certain big economic meltdown that occurred shortly before its creation. At the time, the goal was to revive the floundering housing market by insuring fixed rate mortgages for applicants who met certain qualifications. Around this time and for the next few decades, the American Dream which was heavily reliant on the prospect (and almost guarantee) of home ownership if you had a pulse and something small for a token down payment was fed by the FHA.

It was easier for this happen what started out as an attempt to have an agency that would rescue the housing sector was allowing for associated consumption (buying for the home, interest, etc) became its own beast entirely. It was good-really good-for the American economy to have people owning homes. Over time (and for more reasons that we could ever hope to address here) FHA regulations slackened. And slackened.
And what this meant was that many borrowers bought homes they could not afford and wound up in foreclosure. After years of this mishandling, the FHA is nearly insolvent and we are facing the dire prospect of a taxpayer bailout.

And what was that we were told about the supposedly swift impending resurgence of the housing market? Oh, and what was that about parallels between the immediate post-depression era's crisis in housing?

Congresswoman Shelley Moore Capito (R-W.Va) has introduced legislation designed to head off a taxpayer bailout and to ensure stability for the FHA. Co-sponsors of the bill include Spencer Bachus, (R-AL), Randy Neugebauer (R-TX), Scott Garrett (R-NJ), and Judy Biggert (R-IL). The bill, "FHA Safety and Soundness and Taxpayer Protection Act of 2010," seeks to head off a threatening taxpayer bailout by providing reforms that will enable the FHA to achieve solvency and stability. The bill's provisions include risk-management reforms that will give the FHA the right to increase premiums, tighten up the qualifications for borrowers and lenders, and restore its capital reserves.

Desperate times call for desperate measures. One thing is for sure; first-time homebuyers using outdated information are in for a major shock when they sit down to discuss purchase costs-it is critical that they keep abreast with changes. Another shock is likely going to be coming to the American taxpayer, but then again, we have seen worse in terms of bailouts, right?