Category Archive : Mortgage

Important Announcement – If you are considering securing FHA 3.5% down financing for a home in Clark County (Las Vegas, Henderson, North Las Vegas, Boulder City), you have until October 1, 2011 fund on your loan before the loan limits drop from $400,000 to $271,050.

What this basically means is that the alternative to FHA Mortgage Loans is finding a Conventional Mortgage, which may require a much larger down payment (up to 20%), as well as higher credit scores and income requirements.

Quick Background:

When Congress passed the Economic Stimulus Act in 2008, FHA loan limits were temporarily raised to help borrowers in higher cost areas obtain financing through FHA to help offset the reduction in private financing due to the credit crunch. These Loan Limit increases were substantial in many areas of the country and were set to expire in the future. ( I wonder if Congress knew we’d have a housing bubble )

Congress passed additional legislation to extend these loan limits for the past couple of years. However, barring any Congressional action, the FHA Loan Limits are set to revert to the 2008 formula as of October 1, 2011.

Clark County FHA Loan Limits / Proposed Changes:

* Sources: Search FHA Loan Limits | May 26, 2011 – FHA Loan Limit Brief

How Will This Impact Buyers?

A few of the major benefits of an FHA Mortgage Programs:

• Liberal Credit Requirements (580-640 Fico Scores May Work)
• Lower Rates (Not hit with rate increases due to lower FICO scores – LLPA)
• 3.5% Downpayment

While there is mortgage money available… for now, Section 941 of the Dodd-Frank Act pertaining to risk retention and the Act’s definition of qualified residential mortgages (QRMs) could make it very challenging for many First-Time Home Buyers to get a loan. (Video: “Skin In The Game)

However, the difference in downpayment and higher rates may actually force the sellers who have their properties listed in the low $300,000 range to drop their prices just to compete for the FHA borrowers.

Not sure, but this theory makes sense to me, especially if we’re talking about Las Vegas Short Sales and REO’s where the banks will need to price their listings according to accurate market comps.

Buy now, or wait for the FHA loan limits to decrease, along with property values?

Tough question to answer if you’re only concerned with value, equity and other “investment” related topics that probably shouldn’t be mixed with the decision to purchase a primary residence.

And if you’re a cash investor, then this FHA loan limit decision probably won’t impact the homes in your price range of Las Vegas real estate investment deals under $145,000.

Keep in mind that 51% of residential properties purchased in Clark County last month were paid for in cash, and not secured by a mortgage loan.

Either way, the following map and list of homes for sale in Las Vegas and Henderson may give you an idea of what you could miss out on once the FHA Loan Limits in Clark County decrease.

The two main questions to ask yourself area whether you would rather pay 3.5% or 20% down, and if you’re willing to risk getting a higher rate by waiting until after October 1 to see what the market does.

* This list updates every day from the “ACTIVE” listings in the MLS. Once a property goes into contract or “Pending” status, it is automatically removed from this list.

Are VA Loans Better Than Conventional Mortgages?

A VA loan is often a better option than a convention mortgage for veteran and active duty military home buyers who are interested in purchasing a Las Vegas home.

With Nellis Air Force Base located near North Las Vegas, we have several VA eligible first-time homebuyers contacting Shelter Realty about taking advantage of the historically low housing prices in the valley.

Unfortunately, the national media has many buyers convinced that the only way they can qualify for a home loan is if they have perfect credit and a huge downpayment.

Over the next several weeks, I’ll be tearing apart the common myths and misunderstandings about mortgage financing in order to help shed some light on the truth about getting approved for Las Vegas mortgage.

Even though each qualifying scenario is unique and requires a full loan approval from a mortgage professional who has experience with VA financing, the following list highlights the main benefits VA loans have over conventional mortgage programs:

1.  100% Financing –

A typical convention mortgage requires an initial down payment that can range from 5% – 20% of the appraised value on a purchase.

I say “appraised value” vs “purchase price” because there are instances when a property does not appraise for the full value of a homeowner’s asking price.  At that point, the borrower would have to pay the difference between the asking price and appraised value, as well as the standard 5% – 20% down payment.

Either way, VA loans generally do not require that initial large down payment based on the standard Loan-to-Value lending guidelines that come with a conventional mortgage program.

2.  Lower Interest Rates –

Another major benefit is that VA loans have comparatively better interest rates.  In some cases, a VA loan mortgage rate can be as much as .50% lower than on a similar conventional program.

Over the course of several years, a $35 – $75 a month payment will definitely add up to a significant savings.

The process of shopping mortgage rates is the same with any program, so it’s a good idea to have a basic understanding of how the markets work if you’re concerned with comparing quotes between a few lenders.

3.  No Mortgage Insurance –

Private mortgage insurance (PMI) is generally required on conventional loans when the loan amount being borrowed is greater than 80% of the value of the property.

The Department of Veterans Affairs does have a funding fee requirement for VA loans. This funding fee can be anywhere between 0.5% to 3.3% of the loan total. However, veterans who were classified as disabled during at least 10% of their time in active duty do not have to pay the fee.

Mortgage insurance is basically in place to protect the lender in the case of payment default or foreclosure.

4.  Qualifying Guidelines –

It is also typically easier to qualify for a VA mortgage loan than a conventional mortgage, especially if you have a recent bankruptcy or foreclosure within the past four years.

There isn’t a hit to the interest rate for lower credit scores, and VA underwriters tend to give special circumstances more consideration if there is a good letter of explanation.

In addition to the benefits mentioned above, VA loans have two payment term options – Fixed or Adjustable Rate.

The difference between the two options is as follows:

• Fixed rate loans have one payment tied to the same interest rate for the entire term, which is typically 15 or 30 years.

• Adjustable rate loans start off with a set interest rate for a predetermined period of time, and then the rate may change based on the specific terms set forth on the note. Know you options, and make sure you understand which program you are choosing.

Refinancing with a VA loan also has many benefits over refinancing with a conventional loan.

Some of refinance benefits include:

• A higher refinance limit (up to 90% and some 100%) than the majority of conventional loans.

• Easier credit requirements, which often make refinancing with a VA loan simpler and less stressful.

• Help from the Department of Veterans Affairs for borrowers currently in default because of financial hardship.

• No requirement of private mortgage insurance.

• The ability to include the VA funding fee with the total amount of the refinance.

Between the tremendous savings and streamlined qualifying guidelines, any veteran who is in the  process of purchasing or refinancing a home should strongly consider using their  VA benefits.

Shelter Realty works with several qualified and experienced mortgage professionals that specialize in helping Las Vegas Veterans qualify for a VA loan.

Please feel free to contact us if you have any questions about VA approved properties or speaking with one of our trusted lenders.

Can I Finance A Luxury Las Vegas Queensridge Home With A Low Down Payment?

Yes, it is possible to finance a luxury Las Vegas home in the beautiful Queensridge Community with as little as a 3.5% down payment, provided the purchase price is below $400,000 for FHA financing.

There is actually an opportunity to qualify with zero down financing for a slightly higher purchase price if you are eligible for a VA loan.

It’s obviously important to work with a trusted mortgage professional who understands these various local lending guidelines.

However, I find that most of my Las Vegas First-Time Home Buyers looking in the Peccole Ranch area start their real estate search for homes between $60k – $130k, when they can actually afford financing on a property in some of the more prestigious neighborhoods around the 89117 or 89145 zip codes.

While there are certainly several available listings in lower price ranges that may provide a cash flow opportunity for investors, choosing a home and neighborhood to live in involves searching with a slightly different criteria.

Queensridge, for example, is a guard-gated luxury community, which includes a full fitness center, tennis, pools, spa and is woven around the Badlands Golf Course.

With several listings in the million dollar price range, Queensridge does have a select few properties for sale that would qualify for lower down payment financing.

If you’re concerned about the investment quality or potential for future earned equity, it’s generally a wise idea to purchase a home in a neighborhood with stronger comparable values.

So, only if your personal budget and comfort level warrant it, you feel confident in your future employment security and there is a low possibility of moving in the next 5-10 years, it may be worth considering a home in the luxury Las Vegas Queensridge Community.

Since most of these listings require a scheduled appointment to preview, please feel free to contact me at any time about setting up a few viewings at your convenience @ 702-376-7379.

How Can A VA Compromise Sale Help Underwater Las Vegas Homeowners?

If your Las Vegas property is secured by a VA loan with a mortgage balance that is higher than the appraised value, and you need to sell, then you may be eligible for a special program called a VA Compromise Sale.

Basically, a VA Compromise Sale is a program similar to a short sale transaction, which is designed to help veterans sell a property with an upside down mortgage balance without taking a huge financial loss.

In any case, if you bought a home with a VA loan back when the housing market was healthy, you probably didn’t foresee the need to sell your home in the depressed housing market of today.

The need to move overseas, divorce or or a station change are a few of the reasons that would force a VA homeowner into selling a property.

Obviously, for many veteran borrowers who are facing this scenario, taking a loss on the sale of their home could result in extreme financial difficulty.

How Can A VA Compromise Sale Help Me?

If you are selling your house and receive a purchase offer for less than what you still owe on your VA loan, you can turn in an application with the Veterans Administration for a VA Compromise Sale.

In many ways, a VA Compromise Sale is similar to a short sale with another type of mortgage program.

The good news is that if you receive approval for a VA Compromise Sale, then the VA will redeem you for the difference between what you can sell your house for and what you have left on your VA loan.

To Qualify, You Must Show Proof Of:

• Financial difficulties.

• The realistic market value of your house at time of sale.

• A VA appraisal.

• Standard closing costs.

• No second lien (the VA does makes rare exceptions if the total is not significant).

• The reasons why you are selling your home.

Another important component of getting approved for a VA Compromise Sale is that the total net loss should be less than if the property was taken back by the bank through foreclosure proceedings.

So basically, if it costs more to foreclose vs “short sale” the home, then there is a greater chance of getting a VA Compromise Sale approved.

On another note, if your VA loan originated before December 31, 1989 you might have to sign a promissory note as well as enter a payment plan to redeem the VA a percentage of the compromise claim payment. This sum would end up being less than what you would owe if you did not originally have a VA loan, and the payment plan itself is formulated around what you would reasonably be able to pay.

Our Short Sale team has a proven track record of successfully negotiating with banks to help homeowners sell their properties for less than they owe on their mortgages. However, with a VA Compromise Sale, most of the negotiating process is reduced to simply filling out the proper paperwork and submitting a clean and fully completed package.

Please feel free to contact us to see if your property or unique short sale scenario might be eligible for a VA Compromise Sale.

Purchasing A Las Vegas Home With A VA Mortgage Loan

Financing a property with no down payment is still possible for Las Vegas buyers who are eligible for a VA Mortgage Loan.

And even though we have Nellis Air Force Base located in North Las Vegas, it’s amazing to me how many local real estate agents lead their first-time home buyers to believe that they can only get qualified for a mortgage if they have high credit scores and a 20% down payment.

The truth is that taking out a VA mortgage loan on a new home purchase is fairly straightforward, relatively easier to qualify for than a conventional loan, generally comes with lower interest rates, doesn’t require mortgage insurance and can be financed up to 100% of the purchase price.

The Basic VA Loan Approval Process:

• Meet with a qualified mortgage officer to get a pre-approval letter, discuss closing costs and payment options and get a list of items needed for full loan approval.

• Find the property you would like to buy and arrange the purchase with the seller.  You’ll then sign a purchase contract conditional upon approval of a VA guaranteed loan.

• Choose your lender, present your Certificate of Eligibility, and finish the loan application. Your lender will determine your credit and submit a request to the VA to dispatch a licensed appraiser to evaluate the value of the property.

• If the determined value is acceptable to all involved parties, and the lender determines that your loan application meets the VA loan requirements, your mortgage can be approved.

• You (and co-borrower, if applicable) will then attend the loan closing and sign the related papers. The closing escrow agent or attorney will explain loan terms and requirements and monthly payment details.

Please note that when the VA receives a report of the loan, the Certificate of Eligibility is adjusted to reflect use of entitlement and is then returned to the veteran.

No further actions are required to get your COE back, which just makes the overall process easier for veterans

There are a few unique aspects and conditions to getting approved for a VA Loan, which is why it’s important to make sure your loan officer has experience closing VA Mortgage purchase transaction.

Income, assets, credit scores and appraisal requirements are a few of there areas that can cause a delay or result in a denied loan if your lender is unfamiliar with the recent VA guideline changes.

I’ll actually be writing extensively about the VA mortgage program over the next few months to help educate our Las Vegas veterans and VA eligible home buyers about some of the unique advantages available with VA loans.

You Can Get Mortgage Approval If You Are One Day Out Of A Las Vegas Short Sale

How long after a short sale before I can qualify for a new home loan?

This is the main question most of our Las Vegas underwater homeowners have that are weighing their options of loan modification, short sale or foreclosure.

And, not being able to plan for future home-ownership can add more anxiety to the equation.

It’s frustrating when you struggle to do the right thing and make your mortgage payments on time, and then feel penalized by the system by being denied for new mortgage financing due to a recent short sale that was out of your control.

Obviously, if we’re going to turn this slow market around, banks will eventually have to figure out a way of providing special circumstances for qualified borrowers that may have fallen victim to a financial crisis that was largely influenced by mortgage and real estate fraud.

Well, the good news is that according to recent changes in FHA Financing Guidelines as of March, 2011, Las Vegas home buyers who are as little as one day out of a short sale on a previous property may qualify for a new mortgage.

FHA Day Out Of Short Sale Overview:

You can read the official FHA Guidelines, but the following screenshot created by a friend Scott Schang highlights the main points:

So, what this is basically stating is that unless you did a short sale simply for financial gain, there is a chance you could be eligible for a new FHA mortgage right away.

Examples Of Possible Acceptable Reasons For Short Sale:

• Living in previously owned bachelor pad condo – got married, have kids – 1 bed 1 bath doesn’t accomodate 3+ person family
• Kids move out of home – parents no longer need 4 bed 3 bath home for 2 people
• Relocating because of job
• Death in the family
• Forced sale due to a divorce

Before writing this post, I did a considerable amount of research online, as well as speaking with one of our trusted local loan officers, Brian Maier, to ensure there weren’t any hidden challenges our buyers would face if they planned on purchasing a new home immediately after doing a short sale.

Brian said it is important that the borrowers have a clean mortgage payment history for the past 12 months.

This means that there are no 30-day late mortgage payments on your credit report in the past year.

He also stated that each lender has their own qualifying criteria based on standard eligibility guidelines, such as credit, loan-to-value and debt-to-income ratios.

I certainly understand that the words “May Qualify” probably create more uncertainty than hope, but Brian did mention that some lenders were more lenient than others on what they determined “Acceptable” reasons for a short sale.

Either way, the point is that we are moving in the right direction for making mortgage financing available for “make sense” scenarios.

Our Las Vegas Short Sale expert, Paul Rowe, definitely has the knowledge and track record to help answer any of your selling questions.

If you’re interested in digging deeper about how to qualify for a new home loan please contact us for more information.

Many media outlets such as The Wall Street Journal and Bloomberg are reporting that the Obama administration is considering plans to get the government out of the mortgage business and are submitting different plans “to bring a controlled end” to the government sponsored enterprises (GSE’s). In other words, their going to pull the plug on these brain-dead behemoths.

Neither Fannie or Freddie has posted a profit in over three years and the American taxpayers have subsidized them with $150 billion dollars of support to keep them operating. Many opponents of the bailouts felt nothing could save the GSE’s and the any monies spent would be wasted. It seems they were correct.

The government is finally crying “uncle” and this is a good thing. They should stick to oversight and get out of the mortgage business. Private companies are best equipped to provide financing; however, they need to do so in a lucid manner that best serves the long term interests of their shareholders…responsible lending.

Although no final plans have been adopted, the general consensus is to phase out Fannie and Freddie in the next few years. It should be noted that the process of eliminating Fannie/Freddie will have no impact on persons who are currently doing short sales or are in the loan modification or foreclosure process. These are huge institutions and shutting them down will take 3-5 years.

If you have any questions if you are delinquent or about to be on your home, please call Shelter Realty at 702-376-7379.

Simply checking online for today’s posted rate may not lead to your expected outcome due to the many factors that can cause each individual rate and closing cost scenario to fluctuate.

We can preach communication, service and education all day long, but it’s our ultimate goal to earn your trust so that you can be confident in our ability to successfully lead you through this complex mortgage process.

Since mortgage rates can change several times a day, the following questions will help determine whether or not your lender truly knows what to look for so that they can provide you with the best rate once you’re in a position of locking in your loan:

Who determines mortgage rates, and what are they tied to?

Mortgage interest rates are determined by the pricing of Mortgage Backed Securities or Mortgage Bonds. The media often implies mortgage rates are based off the 10-year Treasury Note, which is incorrect.

While the 10-year Treasury Note has been known to trend in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions.

How often do mortgage rates change?

Mortgage rates may change throughout the day, however they only change on days when the Bond markets are trading securities since mortgage rates are based on Mortgage Bond prices.

Think of a Mortgage Bond’s sales price similar to that of a Stock that trades up and down during the course of a day.

For example – let’s assume the FNMA 30-Year 4.50% coupon is selling for $100.50. The price is 50 basis points lower from the previous day’s closing price of $101.00.

In simple terms, the borrower would have to pay an additional .50% of their loan amount to have the same rate today that they could have locked in the previous day.

What causes mortgage rates to change?

Mortgage Bonds are largely affected by various market forces that influence the changing demand for bonds within the market.  Some of the key economic factors that have the greatest impact are unemployment percentages, inflationary fears, economic strength and the overall movement of money in and out of the markets.

Like stocks, most fluctuation is caused by consumer and investor emotions.

What do you use to monitor mortgage rates?

There are several great subscription based services available to monitor Mortgage Bond pricing.

The key is to make sure the lender is aware they should be monitoring Mortgage Bond pricing, such as the Fannie Mae 30-Year 4.50% coupon… and not the 10-Year Treasury Note or the news media.

When the Fed changes rates, why do mortgage rates move in the opposite direction?

It is a common misconception that when the Federal Reserve implements a rate cut it is immediately correlated to a reduction in mortgage rates.

The Federal Reserve policy influences short term rates known as the Fed Funds Rate (“FFR”). Lowering the FFR helps to stimulate the economy and increasing the FFR helps to slow the economy down. Effectively, cutting interest rates (FFR specifically) will cause the stock market to rally, driving money out of bonds and creating potential for inflation.

Mortgage Bond holders need to obtain a higher rate of return on their money if inflation is increasing, thus driving up mortgage rates. With the Federal Reserve Board meeting every six weeks, this is an important question to ask. If your lender does not have a firm understanding of this relationship, they may leave your rate unprotected costing you thousands of dollars over the life of your mortgage.

Do different programs have different interest rates?

Conventional, FHA and VA loans can all carry different rates on a 30-Year fixed mortgage. FHA and VA loans are insured by the Federal Government in the event of defaults.

Conventional mortgages are insured by private mortgage insurance companies, if insurance is required.

Typically, FHA and VA loans carry a lower rate because the investor views the government backing as less of a risk. While rates are usually different for each program, it may be more important to compare the monthly and overall cost during the life of the loan to determine which program best suits your needs.

Why is an Adjustable Rate Mortgage (ARM) rate lower than a fixed rate mortgage?

An Adjustable Rate Mortgage (ARM) is usually fixed for a specific period of time. The period is typically 6 months, 1 year, 3 years, 5 years or 7 years. The shorter time period the rate is fixed, the lower the interest rate tends to be initially.

This is due to the borrower taking the future risk of increasing interest rates. The only instance where this would not be true is when there is an inverted yield curve where short-term rates are higher than long-term rates.

Why are rates higher for different property residence types?

Mortgage interest rates are based on risk-based pricing. Risk-based pricing allows adjustments to par pricing for risk factors such as; FICO scores, Loan-to-Value percentages, property type (SFR, Condo, 2-4 Units), occupancy (Primary, Vacation or Investment) and mortgage type (Interest Only, Adjustable Rate etc).

This allows the investors who lend their money for mortgages to receive additional compensation for taking additional risk.

If the borrower encounters a financial hardship, are they more likely to make the payment on the home they live in or the one they rent out?

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Related Mortgage Rate Articles:

• Mortgage Rate Overview
• Top Five Market Factors That Influence Mortgage Rates
• What’s The Difference Between APR and Note Rate?
• How Are Mortgage Rates Determined?
• How Do Mortgage Rates Move When The Fed Lowers Rates?

A mortgage is generally the largest debt most homeowners have to manage.  It’s a good idea to give your personal real estate finance portfolio a check-up at least once a year. Since there are many reasons a homeowner may choose to refinance, we’ll take a look at the four most common.

1)  Mortgage Rates Drop

Typically, the most common reason that homeowners refinance their mortgage is to secure a lower interest rate. Interest rate and loan amount determines the total cost that a borrower will pay. The lower the interest rate, the less the overall cost will be. Interest is calculated on a daily basis and usually paid back to the lender on a monthly basis.

2)  Lower Payments

Lowering a mortgage payment can be achieved by lowering the mortgage rate, lengthening the loan term, combining two or more loans or removing mortgage insurance.

3)  New Mortgage Program

Refinancing an Adjustable Rate Mortgage (ARM) to a new Fixed Rate Mortgage (FRM), combining a first and second mortgage or paying off a balloon loan are three possible reasons to explore a refinance.

4)  Debt Consolidation

If there is sufficient equity, sometimes paying off consumer debt by combining all debts into one lower monthly mortgage payment can significantly reduce the short-term deficits in a budget.  However, it’s important to keep in mind the total cost of that debt by adding it into a 30 year mortgage payment.

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Frequently Asked Refinance Questions:

Q:  Do I have to refinance with my current mortgage company?

No, you may choose any company to refinance your mortgage since the new loan will replace the existing mortgage.

Q:  Is it easier to refinance with my current mortgage company?

It is possible your current mortgage company may require less documentation, but this could add additional cost or a higher interest rate. Do your homework and shop around to make sure you’re getting the best deal.

Q:  Will I automatically qualify if I’ve never made any late payments?

No, you will have to qualify for your new refinance. However, certain programs will allow for reduced documentation like a FHA to FHA Streamline Refinance.

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Related Article – Refinance Process:

• Refinance Process Overview
• Mortgage Approval Process
• Calculating The Net Benefit Of A Refinance
• Should I Refinance Or Get A Home Equity Loan To Make Improvements?
• What Do Appraisers Look For When Determining A Property’s Value?
• Understanding The Difference Between Appraised Value vs Neighborhood Listing Comps
• Five Myths About Home Values

Although every situation is unique, it is not uncommon for home-buyers to qualify for a mortgage on a new home while still living in their primary residence.

Perhaps you are outgrowing your current house, or have been forced to relocate due to a job transfer?  Regardless of the motivation for keeping one property while purchasing another, let’s address this question with the mortgage approval in mind:

So, Do I Have To Sell?

Yes. No. Maybe. It depends.

Welcome to the wonderful world of mortgage lending. Only in this industry can one simple question elicit four answers…and all of them may be right.

If you are in a financial position where you qualify to afford both your current residence and the proposed payment on your new house, then the simple answer is Yes!

Qualifying based on your Debt-to-Income Ratio is one thing, but remember to budget for the additional expenses of maintaining multiple properties. Everything from mortgage payments, increased property taxes and hazard insurance to unexpected repairs should be factored into your final decision.

What If I Rent My Current Property?

This scenario presents the “maybe” and the “it depends” answers to the question.

If you’re not quite qualified to carry both mortgages, you may have to rent the other property in order to offset the mortgage payment.

In that scenario, the lender will typically only count 75% of the monthly rent you are proposing to receive.

So if you are going to receive $1000 a month in rent and your current payment is $1500, the lender is going to factor in an additional $750 of monthly liabilities in your overall Debt-to-Income Ratios.

Another detail that can present a huge hurdle is the reserve requirement and equity ratio most lenders have. In some cases, if you are going to rent out your current home, you will need to have at least 25% equity in order to offset your payment with the proposed rent you will receive.

Without that hefty amount of equity, you will have to qualify to afford BOTH mortgage payments. You will also need some significant cash in the bank.

Generally, lenders will require six months reserve on the old property, as well as six month reserves on the new property.

For example, if you have a $1500 payment on your old house and are buying a home with a $2000 monthly payment, you will need over $21,000 in the bank.

Keep in mind, this reserve requirement is incremental to your down payment on the new property.

What If I Can’t Qualify Based On Both Mortgage Payments?

This answer is pretty straightforward, and doesn’t require a financial calculator to figure out.

If you are in this situation, then you will have to sell your current home before buying a new one.

If you aren’t sure of the value of the home or how your local market is performing, give us a ring and we’ll happily refer you to a great real estate agent that is in tune with property values in your neighborhood.

As you can tell, purchasing one home while living in another can be a very complicated transaction.  Please feel free to contact us anytime so we can review your specific situation and suggest the proper action plan.

For the home buyer with somewhat limited financial assets and down payment affordability, but good credit, and of course the means to carry a monthly mortgage, which includes many first-time home buyers, the Federal Housing Authority (FHA) offers a very cost-effective method of financing a home.

For instance, the FHA currently allows some of your closing costs to be paid by the seller; up to 6 percent of the loan amount, but as of October 4th, 2010 the seller’s contribution to closing costs will be lowered to 3 percent. Of course, the buyer may have to pay a somewhat higher price for the property due to the seller’s contribution towards closing costs. FHA programs include the one-year ARM, the buy-down, in which the borrower can lower the interest rate through payment of points or interest at closing, and the fixed-rate loan.

The FHA down payment requirement is also lower than for most conventional loans, but there will be some changes regarding required mortgage insurance payments under FHA’s Mortgage Insurance Program (MIP) that will be affected by the new FHA regulations that will be in force beginning on October 4th.

Beginning with this change, upfront costs of the MIP factor will increase from the current .55 to .90. The premium, which is usually financed into the loan, will be reduced from the present 2.25 percent to 1 percent, which would allow the buyer to finance a smaller mortgage. Applying for an FHA loan prior to October 4th would save the buyer the cost of paying the MIP increase.

Under FHA financing regulations, the seller must pay certain closing costs, such as the underwriting fee, document preparation fee, courier and assignment fees. Contract wording will specifically designate buyer and seller payment responsibilities.

It is a common misconception that the federal government finances an FHA loan, when in fact, FHA loans are actually brokered to the secondary market as are conventional loans. Quicker appraisals mean that closings can be accomplished in thirty days or less since loan officers can use an FHA appraiser of their choice.

It’s important to point out that sellers are not as reluctant as they were in the past to accept buyers who were planning to finance through an FHA loan, since once stringent repair requirements have softened over the past few years.

Furthermore, depending on how the contract is written, the seller and buyer can share some of the responsibility for affecting certain repairs, and/or the seller could request that a dollar cap on the cost of repairs be written into the contract in order for the seller to accept a buyer’s FHA loan purchase proposal.

It is also important to remember that the FHA requires any and all additions, renovations, upgrades, etc. be up to code or brought up to code, and that any health and safety issues have been addressed, and the building is structurally sound.

Looking for information for an FHA loan in the Las Vegas market? Please feel free to give us a call at 702.376.7379 so we can answer any questions you may have.

This is typically the number one question mortgage professionals are asked by new clients.

Of critical importance when considering mortgage financing: There is sometimes a difference between what a client ***can*** borrow and what they ***should*** borrow.

In other words, what makes for a comfortable long-term mortgage payment?

The Quick Answer:

If we’re simply considering the financial math, lenders will calculate your Debt-to-Income Ratio and generally allow for 28-31% of your gross income to be used for the new house payment with up to 43% of your gross income to be used for all consumer related debts combined.

Sample Mortgage Scenario:

Let’s use a gross monthly income of $3000 and a qualifying factor of 30% Debt-to-Income Ratio:

$3000 multiplied by .3 (30%) = $900 max monthly mortgage payment

This means that your mortgage payment (Principal, Interest, Taxes, Hazard Insurance) cannot exceed $900 a month.

“Ballparking” a Qualifying Loan Amount:

Simple step:  We use a safe average of $7 per month in payment for every $1000 in purchase price so…

Step 1)  $900 a month divided by $7 = $128.50

Step 2) $128.50 multiplied by 1000 = $128,500 loan amount.

Remember, these are average ratios and guidelines set by most lenders for common mortgage programs.

Keep in mind, while most consumer debts are listed on a credit report, there are some additional monthly liabilities that may contribute to the overall qualifying percentages as well.

Regardless of how your personal income and credit scenarios factor in, it is important to consider your overall budget when trying to determine how much of a mortgage you should qualify for.

Other items to consider in your monthly budget:

1. Confirm all debts are taken into account
2. Any private notes or family loans
3. Short-term expenses – medical, auto repairs, travel, emergencies
4. Plan on additional expenses for the home such as water, electric, maintenance, etc…
5. Keep a cushion for savings and financial planning

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• Common Documents Required For A Mortgage Pre-Approval
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