Tom Spaniel

Preston Hollow Financial Services, Inc

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3 Tips To Consider When Buying A Home With An FHA Mortgage

February 3, 2023 by Tom Spaniel

Tips to Sidestep Common FHA Loan Problems

FHA loans are becoming increasingly popular these days as potential homeowners may not able to qualify as easily for conventional mortgages.

The FHA insures some higher-risk loans, in turn allowing borrowers with low down payments and less than perfect credit to purchase homes and bolster the housing market.

However, while getting through the loan process with an FHA mortgage loan is not necessarily more difficult than with a conventional or conforming loan, there are some issues that you will want to be aware of.

Property Condition

You can’t buy just any property with a FHA loan, or any other loan for that matter. All lenders are concerned with the condition of a property, especially as it relates to livability and safety. 

Major deficiencies in a home will almost always be noted when the home is seen by the FHA appraiser. The appraiser must deem it to be livable, without any conditions that could jeopardize health or safety. 

Sometimes you can get the seller to make the needed repairs to pass the lender requirements. In other cases, you may want go an alternate route. The FHA 203K streamline loan allows you to borrow up to $35,000 for home repairs to bring the house up to code.

Low Appraisal

The primary role of the appraiser is to estimate it’s market value. These estimates are based on the property’s features and a comparison to similar properties that have sold recently. If the appraisal is low, the loan funding could fall through because the FHA underwriting guidelines (along with almost all conventional guidelines) will not let you borrow more than the home’s appraised value. You can, however, add to the amount you bring in to closing if you prefer to compensate for a low appraised value.

Rather than trying to scrape together a bigger down payment, you may want to take the information to the seller to renegotiate the purchase price. The seller will likely recognize that other buyers would be in the same boat, leading the seller to agree to a lower purchase price.

High Debt-to-Income Ratio

Debt to income ratios are a concern with virtually every type of mortgage loan on the market today. Your FHA loan may encounter a snag in the underwriting process if your total debt payments, including your new mortgage, would be a high percentage of your income.

FHA has an automated underwriting program called TOTAL Scorecard which uses an algorithm to determine a borrower’s qualification. The process is quick, and often you can make up for a high debt-to-income ratio with other compensating factors, like a larger down payment or a cash reserve of several months of mortgage payments.

If you have any questions regarding FHA loans or any other home financing questions, please give us a call!

Filed Under: Mortgage Tagged With: FHA Loans, Mortgages

What You Need To Know About A Closed-End Second Mortgage

January 31, 2023 by Tom Spaniel

What You Need To Know About A Closed-End Second Mortgage

A home is probably one of the most expensive purchases you will ever make. It is important for you to understand all of the options available to you, particularly if you need a quick source of cash, and you might be thinking about taking out a second mortgage. You can use a closed-end second mortgage to cover the cost of repairs, medical debt, and even consolidate your other sources of debt. How do you know if this option is right for you?

An Overview Of A Closed-End Second Mortgage

If you decide to take out a second mortgage, you will typically withdraw the cash you need. Then, if you need more cash in the future, you can take out more down the road. In contrast, with a closed-end second mortgage, you will receive the entire loan amount upfront. Then, you will not be able to withdraw any additional cash if you need more because you have already withdrawn the maximum limit. Generally, you can withdraw up to 80 percent of your home’s equity value, but there are many factors that will dictate your limit.

The Pros

Before deciding whether this is the right option for you, you must weigh the benefits and drawbacks. The biggest benefit is that it gives you access to a quick, large, lump sum payment. You can use this to cover home renovations and pay off debt. You also get access to a fixed interest rate. Unlike other options, you don’t have to worry about the interest rate changing.

The Cons

On the other hand, there are some drawbacks you might notice. You have to use your home as collateral, so you risk losing your home if you can’t meet the payments. In addition, you will probably incur higher closing expenses, and you may have to pay a higher interest rate. This is particularly true if you are taking out a large amount of money.

Weigh Your Options Carefully Before Deciding On A Second Mortgage

If you are looking for a second mortgage, you need to think about all of your options carefully before you decide which one is right for your needs. Consider reaching out to an expert who can help you.

Filed Under: Mortgage Tagged With: Loan Options, Mortgage, Second Mortgage

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