FHA loans: Navigating the process- Part 1 Introduction and Mortgage Insurance

By
Real Estate Agent with BouchardGroup RE/MAX 100

Many years ago when I began my real estate career, FHA mortgages were the dread of real estate professionals. The process was so restrictive and cumbersome that it really was quite unpallatable to work with FHA home buyers.

Home Sellers and Listing Agent's did not want to see an FHA contract because it meant that the seller would have to spend more money just to satisfy the requirements of FHA funding rules.

Buyer's agent's reluctantly took on FHA buyers knowing that getting an FHA deal through would be like threading a camel through the eye of a needle.

Today's FHA:

Through the years since however, FHA has become a much more user friendly system and with the catastrophic collapse of the sub-prime mortgage market, FHA has now become the premier means of financing a home for a vast majority of home buyers in the US today.

Gone are obtuse rules and mandates about property condition. In their place FHA has focused on ensuring the qualifications of the buyer rather than material aspects of the property involved.

FHA loans today require less money down, and have more flexibile qualification guidelines than do conventional loans.  

  1. Typically requiring 3.5% of the purchase price as a down payment
  2. Flexibility with respect to gifts from family members to qualify
  3. Allowance of closing costs to be paid by sellers
  4. Currently, In the DC metro and VA and MD suburbs the maximum FHA loan amount is $729,750 for a single family home and up to $1,403,400 for a 4 family + home.

Mortgage Insurance:

For people utilizing the 3.5% down payment minimum, there will be a mortgage Insurace premium to be paid. To some people paying mortgage insurance is an ugly expense that is just simply unacceptable or undesirable.

For others, it is a tool getting your foot in the door into first time home ownership and a necessary evil.

Mortgage Insurance is an insurance policy that you pay for as a home borrower/buyer that insures the lender against your possible future default on the loan.

Typically any time a home owner puts less than 20% downpayment on the purchase of a property, the lender will require a Mortgage Insurance premium.

There are 2 types of Mortgage insurance Premiums associated with FHA loans, you can choose either option.

Up- Front MI:

Currently up front mortgage premiums are 1% of the loan amount of the home. This is considered a "closing cost" and should not be misunderstood as part of the 3.5% down payment funds. A home buyer pays this fee at the time of settlement as a one time fee rather than spreading the cost of it over the life of the loan and adding it into the payments. Overall this option is less expensive than spreading it into your loan payments

Annual MI Premium:

An Annual MIP is charged yearly on an FHA loan currently at a rate of .9% of the loan amount. The cost of this charge is divided up into 12 months and added to your monthly loan payment until your home loan reaches 78% or less of the entire home value as long as you have paid 5 years into that premium.

Obviously it is much more advantageous to pay the up-front fee rather than the yearly fee, but your unique circumstance may require one or the other option.

If you can negotiate with the seller of your home for them to pay your MIP, you will probably have to compensate the seller for that amount up front in the purchase price but in the end it may very well make your monthly payments significantly less in the end and your equity will grow much more quickly as a result.

Here is a sample scenario to illustrate:

  • a home you are willing to pay $100,000 for
  • Your Down Payment is 3.5% or $3500
  • Your total loan on that purchase is 96.5% or $96,500
  • Instead of offering the seller $100,000, you opt to offer them $101,000 so that they agree to pay your roughly 1% ($974.65) Mortgage insurance premium

For specifics on what your exact scenario would be like, contact one of my preferred mortgage lenders to get your FHA loan Pre-Approval and cost breakdown here http://bouchardgroup.net/lenders.cfm

Part 2 of this series will discuss borrower qualifications for FHA loans

Part 3 of this series will discuss property condition requirements for FHA loans

For a discussion on optional FHA 203K streamlined purchase/renovation loans see the discussion located at: http://activerain.com/blogsview/1939068/home-buyer-problems-we-found-a-great-house-at-a-great-price-but-it-has-some-issues-

Dan Bouchard is eager to serve you as your listing agent or buyer's agent and would be happy to hear from you today.

A. Daniel Bouchard  

Service, Results, Integrity you can COUNT On!    www.BouchardGroup.net    202-309-2339 mobile   

http://www.facebook.com/home.php?#!/profile.php?id=1369850778

Under-promising and over delivering is what I strive for!

Licensed in and servicing Washington DCNorthern Virginia and close in Maryland Suburbs.

ASK ME about my CHARITABLE GIVING program!

By the way, I'm never too busy to receive your referrals to assist your trusted friends and family members with their real estate needs in metro DC/VA/MD. I promise to honor them and service their needs with diligence and integrity. If this email is unwelcome please respond with "UNSUBSCRIBE" in subject line.

"We are pledged to the letter and spirit of U.S. Policy for the achievement of EQUAL HOUSING OPPORTUNITY throughout the Nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion, sex, handicap, familial status, or national origin, gender identity, sexual orientation, age or socio-economic standing."

REMAX100 703-642-3380 Reporting brokerage contact number only

 

 

 

 

Posted by

I am eager to speak to any prospective DC/VA/MD home buyers or sellers. dan@DanSellsDCVA.com

A. Daniel Bouchard    Service, Results, Integrity you can COUNT On!     www.DanSellsDCVA.com

   

Certified Distressed Property Expert Logo

202-309-2339 mobile     http://www.facebook.com/home.php?#!/profile.php?id=1369850778

Under-promising and over delivering is what I strive for!

We are pledged to the letter and spirit of U.S. Policy for the achievment of EQUAL OPPORTUNITY throughout the Nation. We encourage and support an affirmative advertising and marketing program in which there are no barriers to obtaining housing because of race, color, religion(creed), sex, handicap, familial status, or national origin, gender identity, sexual orientation, age or socio-economic standing."

REMAX100

703-642-3380 (for legal compliance purposes)

close

This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the pencil to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Topic:
ActiveRain Community
Location:
District of Columbia
Tags:
fha loans
mortgage insurance
limits
va
dc
md

Comments 1 New Comment

Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the clip to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Rainmaker
520,268
David Burrows
No Pressure, Just Seriously Devoted to Real Estate
Classic Realty

Thanks for the information. I had someone ask me just this morning about FHA Loans. - David

November 10, 2010 03:39 PM
Anonymous
Post a Comment
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the man to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Rainer
25,881

A. Daniel Bouchard

Licensed in DC/VA/MD (CDPE)
Ask me a question
*
*
*
Spam prevention

Accessibility option: listen to a question and answer it!

To submit the form,
drag the key to the circle on the side.

Type below the answer to what you hear. Numbers or words, lowercase:

Additional Information

Topics on the practice of Residential Real Estate in the Metro Washington DC, Maryland and Virginia market area. Contracts, Ethics, Certified Distressed Property Expert, 203K FHA Purchase-renovation projects/loans, luxury properties, Virtual Tours, 17 year licensed Realtor experience. Condos, detached homes and townhouses.