Blog with MAE Capital

FHA Loans were born during the great depression in 1933.  The idea of the government insuring a Real Estate loan, at the time, was groundbreaking.   In today’s world, we expect the government to step in and try to fix things when the economy is sluggish or depressed.  In 1933 our government was far less a part of the ordinary citizen’s life and it did not financially take care of its citizens like they try to do today.  So when the private sector was approached by the government to insure mortgages that were traditionally insured privately by large down payments was a groundbreaking concept.  At the time Banks and Brokers were the only way to get a home loan and they required that a potential home buyer put 25-50% or more down to buy a home.  So when the government said they would insure mortgages up to 95% of the value of the home, you can imagine how this changed the way Real Estate Loans were originated.   It was designed to stimulate housing growth to get the country out of the grips of the Great Depression.  It worked, along with a whole new age of people relying on the government to help them when things were tough.  Out of the Great Depression, we also got a welfare system, unemployment insurance that the government collected from employers to help with displaced workers and a whole litany of other programs that expanded the scope of the Government.  The Federal Housing Administration (FHA) was designed to be a short-term way to get the housing markets stimulated to get America out of the Depression.  The program still exists today, and you can take full advantage of it and you can get a mortgage up to 96.5% of the purchase of a home.  

Today FHA loans are still alive and well and are used still today to get people into homes with a small down payment.  FHA loans are still viable loans for those who have a small amount of money to purchase a home.  The way an FHA loan works is very similar to Conventional Loans in that a potential borrower must qualify for the loan with their income and a current credit score.  When we say qualify there are several factors that a lender must review in order for a client to “qualify” for any loan.  These factors are but not limited to having shown the ability to handle credit or in today’s world, have a credit score that meets the criteria of an FHA loan (550 or better).  Generally speaking, FHA loans are more liberal when it comes to having a good credit score than that of its Conventional counterpart that requires a 640 score or better.  If a borrower has a low credit score due to circumstances out of his or her control and has shown that they are trying to take care of it and that is the only factor with regards to their financial situation they generally can get approved for a FHA Loan.  There are several other factors that must fall into line before that can happen, however.  For instance, a borrower’s house payment combined with their monthly bills should not exceed 43% of their gross monthly income.  This brings us to verifying income and what is required by FHA.   First, a potential borrower must have a two-year history of working which could be multiple jobs or a combination of school and a job, and must be able to show that their income will be stable enough to maintain the mortgage payment. Next, a borrower has to be able to prove they have enough money for the 3.5% down payment.  This money can come from savings or can be a gift from a relative a close family member or friend, or an approved Down Payment Assistance Program.   

We talk about FHA loans being federally insured loans, but what exactly does that mean when you have to pay the mortgage insurance on an FHA loan? Simply put there are two payments to the insurance fund a borrower will have to make; One the upfront insurance is 1.75% of the loan amount (Sales Price minus the 3.5% down payment requirement) this is actually added to the loan so you don’t have to come out of pocket for this; Two the monthly payment of the mortgage insurance is a small percentage of the Loan amount every month.  These insurance payments go into pools that are designed to protect the lender’s yield on the loan if there is a foreclosure.  This insurance makes FHA loans more appealing to lenders and thus lenders have more flexible underwriting guidelines and can get more people into homes utilizing the FHA Loan.  

Talking about flexible Underwriting guidelines your eyes probably just rolled to the back of your head as this may sound confusing.  Not to worry I am here to help break it down to simple bullet points that you may not have heard of before.  Being evaluated for loan approval seems daunting but that is why we have a team of folks to walk you through the whole process.  Our highly qualified loan originators will walk you through the process.   The Loan Officer will gather your pay stubs, tax returns, bank statements, and W2s and they will do the analysis for you.  Your loan officer will check your credit, check your debt-to-income ratio, and make sure you have enough money verified to close the transaction.  The loan officer’s job is to paint your financial picture with your financial information and present it to the underwriter, who will approve your loan.  Our Loan Officers do this every day, multiple times, so they are experts at what it takes to get an FHA loan approved, so When you are looking for expert advice and guidance please let us walk you through this process.  

The benefits of using an FHA Loan are:

  1. You Only need 3.5% for a down payment and that can come from your savings, a gift from a family member or an employer, a government institution, or an approved down payment assistance program.
  2. Your Credit Score can be as low as 550.
  3. Your Debt-to-Income Ratio can be as high as 50%
  4. Interest Rates are Lower
  5. You can take cash out of your home up to 85% of the value of the house.
  6. You can finance 1-4 units utilizing FHA when owner-occupied.
  7. You can buy a house 2 years out of bankruptcy.
  8. You don't have to be a perfect person to qualify for an FHA Home Loan
  9.  Utilize a co-borrower to qualify in today's world of higher interest rates.
  10.  Finance your closing costs with FHA, and ask your loan officer how.

Now that we have explored the history and the benefits of using an FHA loan you may ask:  “How do I apply for an FHA Loan?”  At MAE Capital Mortgage Inc., we have over 38 years of experience working with FHA loans, so we should be your logical choice, not to mention our interest rates are better than the rest.  Simply click on this link and you can start the process or call us at 916-672-6130 and we can do it for you over the phone.     

 

Posted by Gregg Mower on August 29th, 2023 10:08 AM

Do you have a FHA loan on your home?  It might just be the right time to refinance that mortgage.  As of January 26, 2015 the Federal Housing Administration will be lowering the monthly mortgage insurance rates by .5%.  This may not sound like a lot but it does reduce your mortgage payment even if you don’t change your existing interest rate.  If you took out a 30 year fixed FHA loan after June 1st 2009 you are paying 1.35% annually for your FHA mortgage insurance.  As of January 26, 2015 FHA will be accepting new 30 year fixed rate loans with mortgage insurance of on .85% or less. 

At the same time interest rates are hitting historic lows again so this is the perfect time to lock into a low rate and reduce your mortgages insurance.  On January 9, 2015 the Federal Housing Administration came out with Mortgagee Letter 2015-01 which state the guidelines lenders must follow for the new lower MIP rates.  The letter address when it is to take effect (January 26,2015) and how lenders can re-issue case numbers for clients they already have in process.  The letter also gives the new MIP rates for both 30 year loans and 15 year FHA loans.  The 15 year MIP rates have stayed the same but the 30 year MIP rate have all been lowered by .5%.  With the new rates in the table below:

Term > 15 Years

Base Loan Amt.                       LTV Previous MIP                         New MIP

= $625,500 = 95.00%                   130 bps                                         80 bps

= $625,500 > 95.00%                   135 bps                                         85 bps

> $625,500 = 95.00%                   150 bps                                       100 bps

> $625,500 > 95.00%                   155 bps                                       105 bps

Term = 15 Years

= $625,500 = 90.00%                     45 bps                                         45 bps

= $625,500 > 90.00%                     70 bps                                         70 bps

> $625,500 = 90.00%                     70 bps                                         70 bps

> $625,500 > 90.00%                    95 bps                                          95 bps

bps=basis points which are a fraction of a percentage.  Example 80bps= .8% so a $100,000 loan amount would have an annual MIP of $800 or /12 $67 a month with the new MIP figures lowering the monthly payment from $109 a month a savings of $42 a month.

As you can see the reduction in the Mortgage Insurance can be significant and increases with higher loan amounts.  So if you have a $300,000 FHA mortgage on your home you took out last year and your loan to value was greater than 95% (you bought the house and put 3.5% down) your monthly mortgage insurance payment is $337 a month if you were to refinance your new mortgage insurance payment would be $212 a month a savings of $124 a month in your payment.  That would be worth the effort to refinance your mortgage in itself.  Well if you took out your mortgage this time last year you may have a an interest rate of 4.375-4.875%  with rate today in the 3.5-3.875% you would also see a savings in the lower rate as well.

 Let’s do an example of a refinance of a home that was bought January of 2014 and say you have a $300,000 loan amount. And an interest rate of 4.5%.  We already did the number for the reduction of the FHA Mortgage Insurance of a savings of $124 a month.  The new interest rate at 3.75% will save another $130 a month for a total of $254 a month that is $3,050 a year.  So if you have been considering a refinance now is the time.

If that has not convinced you to refinance and you think it will be a big hassle let me entice you with another little known fact.  FHA has a program to refinance your home that does not require an appraisal or income verification.  It is call a streamline refinance.  We have a whole page on the Streamline Refinance but I will give a quick overview.  The basics of the streamline are that you have made your mortgage payment on time for the last 12 consecutive months and you have an FHA insured mortgage.  Then all we do for you is prepare the FHA loan paperwork.  You provide us your current mortgage statements and a copy of your home owner’s policy and a copy of the Note, and we do the rest.  You don’t even need to have good credit, although it will help with the interest rate.  We can even refinance your non-owner occupied FHA loan with Streamline Refinance.

Now you may ask what it will cost you to do this.  The answer is we tailor make the loan so that you have no out-of-pocket expenses.  That's right you don't have to pay any additional costs to lower your mortgage payment.  With FHA Streamline loans your loan amount can't go up either, we pay the fees for you.  You do have the option to pay fees and reduce your interest rate even further, but in most cases that is not cost effect to do. We run the numbers for you so you can make the decision on paying fees or not.  It does not matter who your existing lender is or who did the loan for you originally we take care of everything for you and we are paid from the lender who buys the loan.  Oh, by the way, as a Mortgage Broker we get wholesale interest rates and pass those savings on to you.

Let us help you today click here and complete the form or call us to get the ball rolling.   Our number is 916-672-6130 we are licensed to lend on California properties, we hope this information was helpful.

 

Posted by Gregg Mower on January 22nd, 2015 12:35 PM

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MAE Capital Real Estate and Loan

CA DRE #01913783|NMLS #806170

4940 Pacific Street Suite A
Rocklin, CA 95677