Mortgage rates

Owning a home is considered to be the all important American dream. Friends, co-workers and relatives could have urged a person to buy a home but a first time home buyer may already have the idea of buying a home without actually realizing it. Buying a home though is a major investment that would need careful considerations. Apart from the pride of ownership, buying a home would give the family a significant feeling of permanence and security. Homeowners view their property as the tangible fruit of their labor. Home ownership is perceived as forced savings that would give them retirement security.
Homeownership, as compared to renting, is the better financial option. Rents are considered lost money. On the other hand, through the mortgage payments, the home owner builds the home equity. Home ownership also has tax advantages. The homeowner can deduct the mortgage interest and the annual real estate taxes from the federal and from the estate income taxes.
Homeownership, however, do have several drawbacks. If the work entails you to move to another location, it would be difficult given that you own the home. Mortgage payments are basically higher than rents. These payments plus the cost for necessary home repairs could be a big burden if the family has fallen to hard times due to the loss of employment or due to an illness of the family income earner. This financial trouble could result to foreclosure.
The threat of foreclosure disturbs a lot of homeowners. Home foreclosure is increasing at an alarming rate. In 2006, 0.58% homeowners are facing imminent foreclosures. The foreclosure figure was raised to 1% in the first months of 2007 and on the last quarter of the year, foreclosure filings increased to a frightening rate of 97% as compared to last year’s statistics.
Lawrence Wiggins, Sr. of Cleveland is one of these homeowners troubled with a looming foreclosure. He has taken out a loan from a sub-prime lender a decade ago and is now faced with foreclosure. The amount he owes the subprime lenders have ballooned to more than the actual worth of the house.
In the “Ask the White House” forum, Housing and Development Secretary Alphonso Jackson was asked by Brenda of Brimfield, Ohio what assistance can she expect from the government now that her home is on the verge of foreclosure. Her ARM has escalated from 7.9 to 11.430; the husband who is the sole earner in the family was sick and unable to work for over 3 months. Brenda was advised by HUD Secretary Jackson to avail of FHASecure or FHA backed mortgage loans. FHA was touted to have helped more than 35 million American homeowners since its creation in 1934.
What is Federal Housing Administration mortgage? How can it help people achieve the American dream of owning a home? And most importantly how can an FHA mortgage lessen the probability of foreclosures? FHA is an agency within the Department of Housing and Urban Development (HUD) that promotes homeownership by providing mortgage loan insurance to potential borrowers with low to moderate incomes. To help potential borrowers, FHA has come up with two mortgage programs: the single family package where borrower can buy one to four units of properties and the multi family package where mortgage loans are provided for borrowers planning to buy 5 or more units of properties.
There is a common misconception that the FHA is the one lending the money to would be homeowners. The fact is, FHA mortgage helps Americans who are first time home buyers or those with poor credit history to qualify for home mortgages offered by conventional lending institutions.
If you are a first time home buyer or if you have a low credit score, getting a conventional loan could be a challenge. Banks and other conventional lending institutions would most likely disapprove the loan. Of course you have the subprime lenders as your next option but aside from the higher interest rates, these lenders generally require a 10% down payment. On the other hand, if you have opted and qualified for an FHA mortgage, the loan application will most likely be approved by the commercial mortgage lender as it is insured and guaranteed by the government. If the homeowner failed to pay the loan, FHA will pay the lender.
As mentioned before, it would be a lot easier to qualify for an FHA mortgage as lenders are provided with better security. A low credit score, a chapter 13 bankruptcy and other credit problems would not be a hindrance to the dream of owning a home. Basically, banks, mortgage houses and other conventional lending institutions require a 10 to 20% down payment.
An FHA mortgage however, would need as small as a 3% down payment. What is more ideal is the fact that the down payment can come from a government program or from a family member in the form of a gift. A would-be buyer who has an approved FHA mortgage can also avail of the down payment grants given by non-profit organizations whose aim is to help moderate to low income families to have a home of their own. The borrower only has to show an approved FHA mortgage and the non-profit organization will provide the down payment which the would-be homeowner does not have to pay.
In a lot of cases, an FHA mortgage would have much lower interest rates than those charged by conventional lenders. FHA also sets a limit to the fees that will be charged to the borrower. For instance, the loan origination fee should not be more than 1% of the amount of mortgage. This would mean thousands of savings for the homeowner.
A looming foreclosure is akin to an axe that is about to drop and severe the head. The homeowner may be unable to meet the monthly mortgage payments due to an escalating interest rate or the homeowner is currently going through a financial crisis. The income earner may be laid off from work or unable to work due to an illness…whatever the case may be, these incidents would result to foreclosures. FHA provides foreclosure prevention assistance and programs to help homeowners who are in financially distressed.
FHA mortgages are undoubtedly better alternatives for people who want to realize the American dream of owning a home but are not qualified to avail of conventional financing. Primarily FHA loans are taken to buy a home. An FHA home loan may also be taken for home repairs and renovations. Likewise, the loan can be obtained for energy-efficient home improvements.
In order to qualify for an FHA mortgage, an application must be submitted to the Federal Housing Administration. Although FHA does not put much emphasis on credit scores, credit history will still be evaluated. The borrower will be asked to furnish the agency with a credit report disclosing at least a year of on time rental and mortgage payments. The debt to income ratio is considered to stop homeowners from purchasing a home they can not really afford.
Still, a higher debt to income ratio is set by FHA to favor would-be home buyers. The credit check will give the borrower the chance to explain the causes for having a less than desirable credit history. The validity of the reasons will be considered by FHA before the loan is approved. But even with these pre-qualifying requirements, an FHA mortgage can still be easier to qualify as compared to the more conventional loans.
FHA mortgage just like any other mortgages do have some drawbacks. First off is the costly mortgage insurance. If you have opted for a conventional loan, you need to buy mortgage insurance. The same thing goes with an FHA loan, a mortgage insurance has to be purchased by the borrower. The insurance cost is relatively the same- about .05% of the loaned amount. The insurance cost would be broken into 12 monthly installments and incorporated to the mortgage statement.
With an FHA mortgage however, the borrower will be saddled with additional upfront insurance premium which is 1.5% of the mortgage amount. Although this insurance premium is added to the loan amount and will not be due until the final payment of the mortgage, this additional charge will still be considerable. Moreover, the insurance coverage has to be continued until 22% of the principal amount is paid off. This is not so with conventional loans as mortgage insurance coverage can be dropped off once the homeowner has accumulated a 20% home equity.
Another major drawback of an FHA mortgage is the limit it imposes on the maximum amount a homeowner can borrow. The amount of loan which is considerably lower than that offered by conventional loans would still depend on the location or area. With this loan caps, the borrower may be forced to obtain another loan from subprime lenders to be able to purchase the chosen home.
This drawback however, was resolved when the US Senate approved a legislation that raises the amount of FHA loan limits. From $362.000 the amount was raised to $417,000. Coupled with more lenient underwriting standards, this new FHA loan limit is estimated to help around 200,000 homeowners who are facing the threat of foreclosures.