FHA Refinance Loan Options

Mortgage rates are attractively low right now.  So low that many need to consider refinancing.

Those headlines make some homeowners seriously think about refinancing their FHA mortgages and getting into a lower interest rate and/or lower payments to offset the higher costs of owning a home should the fiscal cliff issue enter a worst-case scenario.

While no one should rush into such a decision, those who are ready to to refinance their current loan should know their FHA loan options. According to the FHA official site, borrowers with FHA or conventional home loans have the following choices as described in HUD 4155.1 Chapter Three:

“FHA insures several different types of refinance transactions, including
–Streamline refinances of existing FHA-insured mortgages made with or without appraisals
–No cash out refinances (rate and term) of conventional and FHA-insured mortgages, where all proceeds are used to pay existing liens and costs associated with the transactions,
and
–Cash out refinances. ”

The different types of refinance loan options have a variety of loan term requirements. The FHA limits the maximum term of “any refinance with an appraisal” to 30 years, whereas the maximum term of an FHA streamline refinance with no appraisal, “ is limited to the lesser of the remaining term of the existing mortgage, plus 12 years, or  30 years.”

What about appraisals on the home? Some lenders may require one even when the FHA does not. Some borrowers want to know if they can use the original appraisal on their home for the new loan. FHA loan rules state, “FHA appraisals on existing properties are valid for six months. However, appraisals cannot be reused
–during the six month validity period once the mortgage for which the appraisal was ordered has closed,
or
– for a subsequent refinance, even if six months have not passed.”

To further clarify, the FHA official site states, “A new appraisal is required for each refinance transaction requiring an appraisal.”

FHA MIP Premiums

Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA requirements include mortgage insurance for all FHA loans. Here's the run down on the amounts of mortgage insurance on different FHA loans.

Current Up-Front Mortgage Insurance Premium

The UPMIP is currently at 1.75% of the base loan amount. This applies regardless of the amortization term or LTV ratio.

Current Up-Front MIP on Certain Streamline FHA Refinances

SF forward streamline refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the UFMIP is currently 0.01 percent of the base loan amount.

Current Annual MIP on Certain Streamline FHA Refinances

FHA Streamline refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be 55 bps, regardless of the base loan amount and takes effect on or after June 11th, 2012.

Annual MIP Premium

Annual Mortgage Insurance Premiums for all case numbers dated on or after June 3, 2013 for loans with an Loan to Value of less than or equal to 78% and with terms up to 15 years. The annual MIP for these loans is 45 basis points (45% of 1%).  The following has already been in effect for all case numbers dated on or after April 1st, 2013.

On terms > 15 years and loan amounts < = $625,500 - If the loan to value is < = 95%, the Annual Premium is 130 basis points (bps). If the loan to value is >95%, the new Annual Premium is 135 basis points (bps).

On terms < = 15 years and loan amounts < = $625,500 - If the loan to value is < = 90%, the Annual Premium is 45 basis points (bps). If the loan to value is >90%, the new Annual Premium is 70 basis points (bps).

Note: SF forward mortgages with amortization terms of 15 years or less, and a loan to value ratio of 78% or less, remain exempt from the Annual MIP (Mortgagee Letter 2011-35).

FHA Annual Mortgage Insurance Premium for loans over $625,000
FHA adds an additional 5 basis points to mortgages with base loan amounts exceeding $625,000.

On terms > 15 years and loan amounts >$625,500 - If the loan to value is < = 95%, the new Annual Premium is 150 basis points (bps). If the loan to value is >95%, the Annual Premium is 155 basis points (bps).

On terms < = 15 years and loan amounts >$625,500 - If the loan to value is 78.01% - 90.00%, the Annual Premium is 70 basis points (bps). If the loan to value is >90%, the Annual Premium is 95 basis points (bps).

FHA Loan FICO Score Requirements

FHA loan rules do specify a minimum FICO score for borrowers who want to qualify for the lowest down payment of 3.5%. FHA (HUD) has set a minimum score of 500. Though it it is set at 500, there are very few lenders in the country that will go down to a 500 Fico score. Most lenders have "Overlays". Some will have a minimum score of 580. Others are at 600 & some are at 620.

FHA loan rules do not prevent the lender from have more strict standards (overlays) as long as they are applied in compliance with federal law, Fair Housing Act regulations.

Individual borrower circumstances can and often do play a role in the kinds of terms a borrower is offered. FICO scores are only part of the picture.

Historically, the lower the score a borrower has, the more challenges there are with the file.
The best way to increase ones credit score is to pay your bills (accounts) on time for 12 months. By striving to pay down and pay off your debts.  Anytime you have a missed payment (30 day late), a drop is approximately 30 to 50 points. Collection accounts will drop a score 30 to 50 points.

How you can get an FHA loan

Do you have too much debt to qualify for a conventional mortgage? Having a less than perfect credit score or not much cash for a down payment or a shorter time period since a foreclosure or bankruptcy? You should consider buying a home with an FHA mortgage loan.

The Federal Housing Administration, a division of the Department of Housing and Urban Development, was created 80 years ago to help low and moderate-income families obtain financing for home ownership when there was not an option for the low income population.

The FHA doesn’t actually make home loans. It guarantees that lenders will be repaid if you default on the loan.

That guarantee allows banks and mortgage companies to work with borrowers who might not be able to qualify for conventional home loans and at surprisingly competitive interest rates.

The majority of mortgage lenders are the one that make FHA mortgage loan. One out of every five new home loans is now backed by the FHA according to Ellie Mae, a California-based mortgage technology firm.

FHA has maximum loan limits (loan limits or loan amounts) on how much you can borrow with an FHA loan. (See the FHA Loan Limit based for the county you want to view). Most parts of the country the maximum loan amount is up to $271,050 for single-family homes. Some areas are more. You need to see the FHA county loan limit guide for the county you are in. In high cost areas of the country, as much as $625,550 (areas such as New York and San Francisco).

If the loan amount you need fits in this range then you need to find out more about getting an FHA loan.

They have smaller and more lenient down payment requirements.

FHA mortgages require a down payment of 3.5%. This is $3,500 for every $100,000 you borrow. The average down payment on an FHA home loan is about 5%, according to Ellie Mae statistical reports.

Compared to conventional loans, this is well under the the average non-FHA mortgage loan.

The down payment can come from a gift from a relative, an employer or a community down payment organization that provides financial assistance.

Many conventional mortgages require the down payment to come from a borrower’s savings or other assets, such as proceeds from the sale of another home.

You can qualify with below-average credit scores.

Before the financial crisis, FHA loans were for borrowers with bad credit.

And we mean bad credit. Applicants with FICO credit scores below 640 scooped up more than half of all FHA-backed mortgages, while those with credit scores below 580 received about a quarter of them.

Now borrowers with such bad credit obtain fewer than one out of every 10 FHA loans.

Indeed, the average FICO score for rejected FHA applicants is 665, a score that would have landed in the top half of FHA borrowers just a few years ago.

Most of the money currently goes to home buyers who have below-average, but not terrible, credit. The average credit score for successful applicants is running at 685 so far this year.

But let's be clear. That's still way below the average score of 755 for non-FHA loans.

So what’s the secret to qualifying if you have a credit score in the low 700s or high 600s?

Successful applicants usually have a two-year history of steady employment and paying their bills on time.

You can get an FHA loan if you’re self-employed. Just be ready to document your income with tax returns and financial statements from your business.

The same big financial problems that derailed FHA applications in the past continue to do so. If you:

• Declared Chapter 7 bankruptcy, you usually must wait two years from the date of discharge before qualifying.

• Lost a home through foreclosure, you must wait three years. However, if you can prove that the foreclosure was caused by involuntary job loss or income reduction, and your payment history has been good since then, the waiting period can be as little as one year.

• Are delinquent on a federal debt, such as a student loan or income taxes, you can’t get an FHA loan.

• If you have a credit score lower than 500, you won’t qualify under FHA guidelines. Most lenders have a higher minimum of 600.

You’re allowed to carry more debt.

To obtain a non-FHA loan, borrowers must be spending no more than 36% to 45% of their pretax income on all debts, including mortgage payments, student loans, credit card bills and auto loans. The limit depends on the borrower’s down payment and credit score.

With an FHA mortgage, you can stretch that ratio to 47% — or even a little higher in some instances.

We can get loans approved over a 50% debt to income ratio. It doesn't happen on every file, but it can if they have excellent credit, good job stability, skin in the game and money in the bank after closing. 

If your credit score is below 580, however, debt-to-income ratio can’t exceed 43%. Just because you can be approved with a higher debt ratio doesn’t mean you will be. The typical rejected applicant has a debt-to-income ratio of 50% or higher.

Contact Ben Gerritsen for financing at: 801-747-9176 www.wedohomeloansforyou.com

Increasing a Credit Score

Credit scores have a dramatic effect on a borrowers ability to get the best terms for many types of financing including a home mortgage, a car loan, credit cards, cell phone carriers, utility companies run credit checks, and even some employers rely on credit to screen employees.  To be in in the mortgage industry and the insurance industry, you have to have your credit checked often by regulators. This is how important credit is to the world we live in today

If your credit score does not meet minimum standards you may not even have the ability to get a home mortgage at all.

There are a number of factors that the credit bureaus use to calculate your credit score. One of the most important factors they use is your past payment history which generally accounts for 35% of your credit score. In the mortgage article how to improve a credit score, all the various ways you can achieve and maintain a great credit score are discussed. If you pay attention to these credit scoring factors you will be well on your way to achieving an exceptional credit score.

When it comes to your home there are ways to improve a credit score with specific home finance tips.

Pay Your Bills On Time.

It goes without saying that paying your bills on time is a must if you want to have excellent credit. Above all else you want to make absolutely certain you pay your home mortgage when it is due. As mentioned above, past credit history is a critical factor on how you be viewed by a lender when applying for financing.

There is nothing that will hit your credit harder than a missed payment. Credit scoring agencies will look at a missed mortgage payment in a far more negative light than a missed car or credit card payment. If at all possible you should always consider making your mortgage payment before other bill that are due.

Check Your Credit Report For Errors often

While working in the mortgage industry for many years, I have had the opportunity to see 1st hand that it is easy for credit bureaus to make mistakes on a persons credit report. A credit report error can cost a borrower a lot of money? Any mistake on your report will lower your credit score in negative manner. This makes it vital that you periodically check your credit report for errors but certainly before you try to refinance a mortgage.

If you find an error in your credit report you should make certain that you get it corrected right away! Here are the necessary steps you need to take in order to fix credit report errors. You will want to make certain the errors are corrected before applying for financing.

Postpone Financing Until Your Credit Is In Order

Depending on whether you have discovered a credit report error or had a legitimate blemish on your record in the past could be a reason for postponing a refinance. Removing a credit report error can take a little bit of time but could be worth it in the long run if you factor the difference in rate you will pay without the correction. Unless mortgage rates are climbing dramatically and locking a mortgage rate makes more fiscal sense, you will want to get your financial house in order 1st.

Sometimes there can be unpaid bills that took place a long time ago that come back to haunt you especially if they were turned over to a collection agency. Something as small as a $50 unpaid phone bill could come back to bite you in the form of a higher interest rate on your loan. Just a 1/4 point difference in rate could translate into thousands of dollars over the life of the loan. The good news is that as time goes by the blemish becomes less important in scoring factors.

Paying Off 2nd Mortgages and Equity Lines of Credit

On the surface it may seem like paying off a 2nd mortgage or home equity line of credit (HELOC) is a good idea but it may not be, at least in terms of a credit score going forward. Your credit utilization or what you owe your creditors makes up 30% of the scoring factor that credit companies use to determine your score.

The closing of existing revolving accounts will typically adversely affect the ratio and therefore have a negative impact on your FICO score. You may want to consider lowering the balance but not paying off the loan in one shot.

Pay Your Property Taxes, Income Taxes and Utility Bills On Time

If you find that you are strapped for cash there are certain bills that should always be paid 1st such as a mortgage, car loan and credit card bills. It makes sense to pay these bills 1st because they will have the greatest impact on your credit score. This however, does not make paying your property tax and utility bills on time unimportant.

The good news is that it will usually take a serious delinquency before missed payments are reported and negatively impact your credit score. Most of the time late payments on your property tax bill  or on income taxes won’t effect you for until you are seriously past due, but once they go on your credit, they last for 10 years and have a very bad negative impact on your credit report.  So you cannot neglect these items and you must be proactive to take care of them.

Always keep in mind how you manage your home finances affects your ability to either purchase a home or to refinance and get the best mortgage rates by having your credit in order.

You can contact Ben Gerritsen at: 801-814-2364
https://wedohomeloansforyou.com