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How Can I Get A Cash-Out Refinance Using An FHA Loan?

February 26, 2014 by Coleen TeBockhorst Leave a Comment

How Can I Get A Cash-Out Refinance Using An FHA Loan? While homeowners typically equate the FHA loan program with low-down payment mortgages, FHA refinances are also available.

In addition to easy-to-source rate-and-term and streamline refinances that replace an existing FHA mortgage with a better one, the FHA even offers cash-out refinance loans.

A cash-out FHA loan refinance allows the borrower to take out up to 85 percent of the value of his property. In today’s market, the ability to pull out 85 percent of a home’s equity is attractive, but not as generous as a 96.5 percent FHA purchase mortgage.

Nevertheless, while the borrower doesn’t get the high leverage of a regular FHA mortgage, he still gets many of its other benefits.

FHA Refinance Requirements

FHA cash-out refinances don’t impose limitations on how borrowers use the cash they take out. In addition, they also don’t require the applicant to have stellar credit.

It’s possible that someone could qualify with a credit score in the 500s. What they don’t need is an existing FHA mortgage — FHA cash-out loans are available even when a borrower is coming from a conventional mortgage.

100% And Beyond

It is also possible to borrow more than 100 percent of your home’s value through the FHA 203(k) program. 203(k) loans have one catch, though. Borrowers have to spend the money on their home.

203(k) loans are sometimes referred to as rehabilitation loans. Based on the assumption that the repairs or renovations performed with the money will raise the home’s value, the FHA lets borrowers take out extra money to pay for them.

Applying for a 203(k) loan isn’t always easy, but it can provide extra money for repairs. If a borrower thinks of an FHA loan as only being a tool to buy a house, he is missing out on some of the FHA program’s biggest benefits.

For many people, it is also the best cash-out refinance program available, whether in its traditional or in its 203(k) guise.

What Are The Requirements To Sell A Home Using An FHA Loan?

February 20, 2014 by Coleen TeBockhorst Leave a Comment

What Are The Requirements To Sell A Home Using An FHA Loan? Before an owner can market a property to buyers that want to use a FHA loan, he will want to familiarize himself with the FHA’s standards. FHA won’t insure loans on just any property.

While their standards aren’t as stringent as they used to be, a home needs to be in relatively good condition to qualify for FHA financing.

Location And Lot

To qualify for FHA financing, the property has to be located on a road or easement that lets the owner freely enter and exit.

The access also has to be paved with a surface that will work all year a long dirt driveway that washes out in spring won’t qualify.

The FHA also wants the lot to be safe and free of pollution, radiation and other hazards. For that matter, it also needs to provide adequate drainage to keep water away from the house.

Property Exterior

The FHA’s requirements for making a loan start with the home’s roof. To pass muster, the house must have a watertight roof with some future life left. In addition, if the roof has three or more layers of old shingles, they must all be torn off as part of the replacement process.

The property’s exterior has to be free of chipped or damaged paint if the home has any risk of having lead paint. Its foundation should also be free of signs of exterior (and interior) damage. It also needs full exterior walls.

Property Interior

The property’s interior also needs to be inspected. FHA standards require that the home’s major systems be in good working order.

Bedrooms should have egress routes for fire safety and the attic and basement should be free of signs of water or mold damage.

The bottom line is that the FHA wants to make loans on homes that borrowers can occupy. This doesn’t mean that a home has to be in perfect condition to be sold to an FHA mortgage-using borrower. It just needs to be a place that they can live.

Can I Have A Co-Signer For My Mortgage Loan?

February 12, 2014 by Coleen TeBockhorst Leave a Comment

Can I Have A Co-Signer For My Mortgage Loan? Like credit cards or car loans, some mortgages allow borrowers to have co-signers on the loan with them, enhancing their loan application.

However, a co-signer on a mortgage loan doesn’t have the same impact that it might on another loan. Furthermore, it poses serious drawbacks for the co-signer.

What Is A Mortgage Co–Signer?

A mortgage co-signer is a person that isn’t an owner-occupant of the house. However, the co-signer is on the hook for the loan.

Typically, a co-signer is a family member or close friend that wants to help the primary borrower qualify for a mortgage.

To that end, he signs the loan documents along with the primary borrower, taking full responsibility for them.

When a co-signer applies for a mortgage, the lender considers the co-signer’s income and savings along with the borrower’s.

For instance, if a borrower only has $3,000 per month in income but wants to have a mortgage that, when added up with his other payments, works out to a total debt load of $1,800 per month, a lender might not be willing to make the loan.

If the borrower adds a co-signer with $3,000 per month in income and no debt, the lender looks at the $1,800 in payments against the combined income of $6,000, and is much more likely to approve it.

Co–Signer Limitations

Co-signers can add income, but they can’t mitigate credit problems.

Typically, the lender will look at the least qualified borrower’s credit score when deciding whether or not to make the loan.

This means that a co-signer might not be able to help a borrower who has adequate income but doesn’t have adequate credit.

There Are Risks In Co–Signing For A Mortgage

Co-signing arrangements carry risks for both the borrower and the co-signer.

The co-signer gets all of the downsides of debt without the benefits. He doesn’t get to use or own the house, but he’s responsible for it if the mortgage goes unpaid.

The co-signer’s credit could be ruined and he could be sued (in some states) if the borrower doesn’t pay and he doesn’t step in.

For the borrower, having a co-signer may an additional level of pressure to make payments since defaulting on the loan will hurt him and his co-signer.

3 Important Credit Considerations Before You Apply For A Mortgage

February 11, 2014 by Coleen TeBockhorst Leave a Comment

3 Important Credit Considerations Before You Apply For A Mortgage Before applying for a mortgage, borrowers need to build a plan for how they are going to manage their credit both going into the mortgage process and as they navigate through it.

Lenders like to know that borrowers have a strong likelihood of repaying the loans they take out and, as such, look carefully at an applicant’s credit.

Here are three must-dos that can help an applicant turn into a home owner.

Pre–Checking Credit Reports

Before even starting the home loan application process, borrowers are well served to check their own credit reports and see what appears. If everything is correct, their credit score can help them understand what type of loans are open to them and what they might cost.

When errors come up, pre-checking gives the applicant time to have the errors corrected before applying for a loan.

When an applicant has credit issues, knowing gives him time to fix them. He can pay down balances, add new lines to his report or take other action in advance of applying.

Manage The Debt To Income Ratio

Mortgage lenders calculate a borrower’s ability to borrow based on the debt-to-income ratio. They add up the proposed mortgage payment and the other debt payments and divide them into his monthly gross income.

If he has too much debt or not enough income he won’t get the loan he wants.

To manage this, borrowers have two choices.

One is to earn more by taking on a second job. The other is to have lower payments.

Paying down credit cards can be a quick way to solve this problem.

Avoid Taking On New Debt

When an applicant takes on more debt while applying for a home loan, it can cause three problems:

The inquiry can drop his credit score.
The payments can change his DTI.
The lender might not feel good about a borrower taking on more debt.

Getting a mortgage can be tough. The key is to understand what lenders want to see and give it to them.

If you need help understanding credit and how to prepare for your mortgage transaction, contact your trusted mortgage professional.

Face The Numbers, A Mortgage That Works For You

January 2, 2014 by Coleen TeBockhorst Leave a Comment

Face The Numbers, A Mortgage That Works For You Before taking out a mortgage to buy a home, it’s time to take a realistic survey of your finances so that you can determine your price range and what size of home you can comfortably afford.

Buying a home that suits your finances will mean that your mortgage payments will be easily within your budget and won’t cause you financial stress.

Stay In Your Price Range

Many people, when offered a large mortgage by the bank, are tempted to buy homes that are outside of their price range.

It’s easy to see why a larger property or a more luxurious home might be appealing, but by stretching too far beyond your means you are courting with disaster.

If your monthly mortgage rate just barely fits within your budget, without room for savings, retirement contributions, or to build up an emergency fund – it will only be a matter of time before things start to get tight.

What happens if you lose your job, or if your income decreases? If you are unable to meet your mortgage payments, it is easy to slip very quickly into debt or even bankruptcy. This is why it is so crucial to buy a home that fits your budget.

Here Are Some Questions To Ask Yourself For Figuring Out How Much Mortgage You Can Comfortably Afford:

Make a detailed budget that chronicles your monthly incomings and outgoings. How much money do you really have each month to work with?
What type of safety net do you have if something goes wrong, in terms of savings and family support?
How large of a down payment are you able to save up? At least 20% of the property cost is recommended, but more is always better.
How much outstanding debt do you have from your other lenders, such as your credit card debts, your bank loans, student loans, etc?
How stable is your income? Do you have a steady paycheck or are you self-employed with variable income?
Are you willing to change your lifestyle and lead a more frugal life to get the house you want? Is there anywhere you can cut expenses and spend more on your mortgage payment?
What will be the total of all of the costs associated with purchasing the home, including closing costs, inspections and other fees?
What are the costs associated with moving? Don’t forget to include the moving van, new appliances, hotel expenses, gas and meals out during the transition period.

Once you have asked yourself these questions and taken a close look at your budget, you will be able to determine realistically what you can afford when buying a home – so that you can find that dream home that meets your budget. For more helpful advice, contact your trusted mortgage professional.