Blog with MAE Capital

FHA Loans were born from the great depression in 1933.  The idea of the government insuring a Real Estate loan, at the time, was ground breaking.  In today’s world we expect the government to step in and try to fix things when the economy is sluggish or depressed.  Back then our government was far less apart of the ordinary citizen’s life.  So when the private sector was approached by the government to insure mortgages that were traditionally insured privately by large down payments was a ground breaking 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 out America out of the depression.  The program still exists today, and you can take full advantage of it. 

Today FHA loans are still alive and well and are used still today to get people into home with a small down payment.  FHA loans are still a viable loan for those that have a small amount of money to purchase a home.  The way an FHA loan works is very similar to Conventional or Private Loans in that a potential borrower must qualify for the loan with their income and current credit.  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 word 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 it’s Conventional counterpart.  If a borrower has a low credit score due to circumstances out 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 that 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 or a close family friend, or aa approved Down Payment Assistance Program. 

We talk about FHA loans being a federally insured loan, but what exactly does that mean when you have to pay the mortgage insurance on a 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. 

When talking about flexible Underwriting guidelines your eyes probably just rolled to the back of your head.  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 W2’s 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 presented 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 to 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, or 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 a 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.
  7. You can buy a house 2 years out of bankruptcy.
  8. There are a few more technical advantages that are there but are a bit too confusing so know that FHA loans give you an advantage if you are not an A-1 borrower and still get great rates.

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 Real Estate and Loan, we have over 35 years’ experience working FHA loans, so we would be your logical choice, not to mention our interest rates are better than the rest.  Simply click on this link and you can start to apply right now or call us at 916-672-6130 and we can do it for your over the phone.     

 

Posted by Gregg Mower on June 1st, 2018 11:16 AM

I know you have heard the ads on the Radio or TV and probably are wondering what all the hype is about with certain loans or Loan Companies.   I know most of you have heard of Rocket Mortgage and some of you may have even tried it to find out that it is not as easy as it sounds.  You may have heard of loans that can qualify you with just bank statements or “Income Solving Loans”, as advertised.  You may have heard of Down Payment Assistance programs that are designed to help you with your down payment so you don’t have to come out of pocket to buy a house with very much money.  These are all programs designed to get your attention and some are very viable programs and others you soon find out are a whole lot of work for very little.

So, let’s start with Rocket Mortgage and getting a mortgage with a push of a button.  This is a bit of a pipe dream, so to speak, as in order for this to work you have to input all you information into their system before it can work and in some cases it won’t work and you end up having to deliver the traditional documentation anyway to get approved for your mortgage.  Rocket Mortgage is a division of Quicken Loans which has emerged as one of the largest Mortgage Companies in the nation after Mortgage Melt down of a decade ago.  The way their system works is based on a software platform that is designed to interact with different employer’s payroll systems and different banks.  The software sets up, with your permission, an interaction with web based companies like ADP, Paychex, Talx and other payroll associated companies to verify your income information.  The software also gets your permission to get your online banking information, as well, to verify that you have enough money for the down payment and closing costs associated with the loan.  It will interact with credit reporting agencies as well.  Once you have inputted all your information into their system the software can run income, bills, and cash to close to accurately give you an approval.  However, if your job or bank does not interact with any of the online systems you will have to provide traditional documentation anyway.  The major problem with this system is that you don’t have a human to be able to tell you how to fix any issues with your employment or deposits or any other reasons why their system is declining you for a home loan.  This system is only as good as the information that is inputted from you the borrower and if you are confused as to what to put into the system you may make a simple input error and that could cost you the decision of an approval.  When you work with a traditional Loan Officer they generally do all the input for you based on the documents you provide them and it is in their best interest to get your loan approved and closed as their income depends on it.   This automated system might work for the perfect borrower who has perfect credit and has had one job, one bank account and works for the government.  This, unfortunately, is not the real world, but it is a system that will be refined and eventually something like this will be the way mortgages are delivered in the future, but for now we still need human interaction to deal with problems or glitches that may arise.

Now down payment assistance programs (DAPs) have been around for a long time.  The problem with these programs are that they have become so regulated over the last decade now since the Mortgage Meltdown that there are very few programs available.  In California we have the California Housing Finance Agency or CalHFA for short and they offer an income limited program that is called MyHome Assitance program.  This program will offer up to 3.5% second mortgage on the purchase of a home and the money is ued for the down payment on the first mortgage and closing costs if necessary.  For the MyHome program you need to be a first time homebuyer (not claiming mortgage interest on your primary home for the last 3 years).  You must occupy the home as your primary residence, and complete a homebuyer education course and you must fit into the income limitations.  This assistance program can be used with an FHA or Conventional loan.  For more detailed information and help with doing this loan please contact MAE Capital directly and one of our licensed and qualified Loan Officers can walk you through this process.   CalHFA also offers, though approved Lender’s and Brokers like us the Mortgage Credit Certificate or MCC that is designed to help first time homebuyers receive and additional tax credits from homeownership and this program is also limited by the amount of household income that is made and does not help with the down payment it is only a tax credit program.  This is really your only options for Down payment assistance in California.   It all boils down to being able to get a down payment of 3.5% which is the minimum amount for an FHA loan.  With an FHA loan, the 3.5% can come from a DAP or it can be a gift so it is very flexible as to where the funds to close come from.  Here at MAE Capital we can hold your hand though this process and provide different options as they arise.

Lastly you may have heard of the Cash Call ”Income Solving” loans for owner occupied homes.  These loans are being presented for those folks that may have trouble showing their income to a lender because they are self-employed or write off too many expenses on their Federal Tax Returns.  The commercial on the radio states to call them if you have been declined by a lender for lack of income. Back in the day we used to be able to do stated income loans for those that write too many expenses off their tax returns if it made sense to for the client.  These loans have been made illegal with Dodd Frank Act of 2008 which states that lenders must prove a borrower’s ability to repay the loan they are requesting.  This has been interpreted to mean that you must get Tax Returns, and Pay statements in order to prove the borrower’s ability to repay a loan.  There have been serval institutions that have looked at the law and came up with alternative ways of proving the ability to repay.  One of the best ways to show that a borrower is actually making enough money from their self-employment would be to look at the deposits they make into their bank account every month.  The Bank Statements will also show how a borrower is spending the income that is made from their business.  If a borrower can show that their business is making good deposits every month and they are saving money after paying their usual bills then why would they not be able to afford a house payment.  It is these bank statement loans or “Income solving Loans” that have been becoming more popular with self-employed people as they have a tendency to write-off more expenses than a typical salaried person would simply because they can.  When we analyze a person’s bank statements for the last 24 months you can see trends and habits of good paying individuals or poor paying individuals.  That coupled with a good credit score and savings habits will generally get a loan approved.  These alternate income qualifying or Income Solving products are all different and different lenders will handle them differently, so it is important to use a Mortgage Broker for these products for no other reason than they can find the lender that will approve your loan.   The Cash Call Loan is not the only alternative it is only one of many lenders that offer this type of solution.  Don’t give up if you have been trying to get a bank statement loan from a mortgage banker or a Bank and it is declined chances are there is a lender out there that will probably approve the loan if it makes sense and it will generally be from a lender you have not heard of before. 

The bottom line with regards to loans and specialty financing is that you should be dealing with a Mortgage Broker that knows the ins and outs of these products to get you hooked up with the right lender the first time.  The myth that it will cost you more money dealing with a Mortgage Broker I just that a myth.  In most cases a Mortgage Broker can find you the best interest rate scenario for you as opposed to a Bank or a Mortgage Banker as a Mortgage Broker is paid by the lender in the form of Lender Paid Commission.   So not only could a traditional loan cost you less working with a Mortgage Broker but these specialty loans might only be found to be offered by a company you may never had heard of before but your Broker knows of them as it is our job to know where to find the right loan for our clients.  With specialty loans and down Payment Assistance Programs and even software programs here a MAE Capital we can walk you through the maze of ever changing finances and trends and get you the answers you need to make informed decisions.  We know that you are an expert in your trade or occupation and so are we, and it is our job, and our pleasure, to help you with all of this confusing stuff.  With one phone call you can get the answers you need to Buy, Sell, Finance or Refinance all types of Real Estate.  We look forward to guiding you to your next Real Estate transaction.  Give us a call today at 916-672-6130 and ask to talk to one of our qualified Loan Officers.  If you are selling a home and buying another one ask about our special bundling packages that can save you thousands in Real Estate commissions and fees.

 

 

Posted by Gregg Mower on July 19th, 2017 10:53 AM

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