FHA Information | Yale Roth M.A., M.Ed

Archive for the ‘FHA Information’ Category

Is Your Mortgage Rate Higher If You Do A Cash Out Refinance?

January 18th, 2012 |

Author: yroth

Is the mortgage rate higher for a cash out refinance

Is Your Mortgage Rate Higher If You Do A Cash Out Refinance?

This mortgage question I get a lot from homeowners who are considering taking cash out of their home while refinancing – also known as a cash out refinance.

They want to know if the mortgage rate is higher for a cash out refinance.

The answer is “it depends.”

Like many answers about the mortgage process and mortgages in general, the answer isn’t always black or white, which is frustrating to a lot of homeowners.

The mortgage rate isn’t necessarily higher for a cash out refinance; however, the cost to get the mortgage rate may increase.

The reason why there is a qualifier in the answer is because the mortgage answer also depends on the loan to value LTV ratio.

If you’re doing a cash out refinance and if the loan to value ratio LTV is below 60%, there will be no difference in mortgage rate and mortgage lender fees.

If the loan to value LTV ratio is higher than 60%, then the cost to get the mortgage rate may increase, although the mortgage rate will still be the same. (I’m trying not to be confusing!)

If the loan to value ratio is above 80%, then you’ll see the mortgage rate increase.

The reason is because taking cash out is seen as a greater risk to the mortgage investor, and as a result, there is a premium that the borrower may have to pay to take the cash out.

Now, if the homeowner is consolidating a first mortgage and a home equity line of credit that was put on at the time of home purchase, the refinance transaction will be priced as a rate and term or no cash out refinance.

This applies if the homeowner hasn’t drawn more than $2000 from the line of credit within the past 12 months.

If the homeowner is consolidating a home equity line of credit, also known as a HELOC, and a first mortgage, and the home equity line of credit was put on after the home was purchased, the transaction becomes a cash out refinance and the mortgage rate or cost to get the mortgage rate may be different.

In conclusion, is the mortgage rate higher if you’re doing a cash out refinance?

Not always, it just depends on the loan to value ratio.

The cost to get the mortgage rate may be more expensive if you’re doing a cash out refinance, however.

Why A 7/1 ARM Can Be A Smarter Mortgage Choice Than A 5/1 ARM

January 17th, 2012 |

Author: yroth

Is A 7/1 ARM Better Than A 5/1 ARM?

When you’ve decided that an adjustable rate mortgage ARM makes sense for you, the next question is what type of adjustable rate mortgage ARM is best.

Naturally, you’re going to first consider how long you plan on keeping the home and then decide how tolerant you are of risk.

If you’re thinking that 5 to 7 years is your hold time for the mortgage, you then want to look at the mortgage rates for the 5/1 ARM and 7/1 ARM.

Assuming the lender fees for both mortgage types are the same, you want to look at and compare the mortgage rates.

You’ll notice that the mortgage rates and mortgage payments for the 5/1 ARM are going to be slightly lower than the mortgage rates and mortgage payments for the 7/1 ARM.

Don’t be lured by the siren of the low rate.

Strongly consider your mortgage hold time. If it’s possible you can keep the mortgage beyond 5 years, it would make sense to pay the higher premium and take a slightly higher mortgage rate.

See the difference in monthly mortgage payment.

If there is a .25% or .375% difference in mortgage rate, the mortgage payment difference isn’t going to be dramatic, unless the loan amount is very large.

In my opinion, if you’re uncertain whether your mortgage hold time is 5 or 7 years, it makes more sense to take the slightly higher mortgage rate and mortgage payment with the 7/1 adjustable rate mortgage and be protected for the additional 2 years.

The ARM cap structure for the 5/1 and 7/1 ARMs is most commonly a 5/2/5 cap structure, which means that your mortgage rate can increase 5% after the first adjustment.

So after the 60th month on a 5/1 ARM, your mortgage rate can increase 5% over the mortgage rate you had for the first 5 years.

Given this, it would make more sense to secure the mortgage rate and mortgage payment for the additional 2 years and go with the 7/1 ARM.

In conclusion, if you’re unclear about your mortgage hold time and it can be around 5 to 7 years and as long as the mortgage rate and mortgage payment difference isn’t significant, it makes more sense to secure the 7 year fixed ARM and be safe.

Mortgage Questions – “Can I Qualify For A Mortgage With A Credit Score Below 620?”

December 16th, 2011 |

Author: yroth

Happy Friday Everyone!

I got this mortgage question this morning from from a homeowner and I thought I would write a mortgage answer to it as I get it a lot.

The homeowner wanted to know whether he’d qualify for a mortgage with a mid credit score of 585.

First, homeowners and first time home buyers, you are assigned 3 credit scores from the 3 credit bureaus: Equifax, Experian, and Trans Union.

The middle credit score is the representitive credit score - that means that’s the score that the mortgage will be underwritten and priced off of.

Now this homeowner had a mid credit score below 620 but his wife had credit scores in the high 690 range.

So he asked if he would qualify for the mortgage using his wife’s mid score, which I think was 693.

Unfortunatley, the answer is “no.”

If there are 2 borrowers, the mortgage is underwritten and priced off of the LOWER middle credit score.

So in his case, his mid score was 580 and his wife’s mid credit score was 692.

580 is the score that the mortgage will be underwritten at and since it’s below 620, he’s not going to qualify for the mortgage.

A potential solution to this problem is to remove him from the loan and just apply under his wife’s name as her credit score is 692.

The challenge under that scenario is that the wife has to qualify from a debt to income ratio standpoint, which is another mortgage underwriting criterion.

So, if her monthly installment debt isn’t greater than 45% to 50% of her gross monthly income, then she would qualify on her own and they can proceed.

In conclusion, homeowners and first time home buyers, if your mid credit score is below 620, it’s going to be tough to qualify for a mortgage, even if the co-borrower’s credit scores are above 620.

Mortgage Questions – “Does It Make Sense To Pay Discount Points To Get A Lower Mortgage Rate For An Adjustable Rate Mortgage?”"

December 15th, 2011 |

Author: yroth

Does It Make Sense To Pay Discount Points On An Adjustable Rate Mortgage?

Paying discount points to get a lower mortgage rate is a question I get from time to time. Most homeowners and first time home buyers treat discount points or “points” like the plague.

Most homeowners and first time home buyers don’t realize what points are and how they can benefit the borrower.

However, the mortgage question is “Does it make sense to pay discount points to get a lower mortgage rate for an adjustable rate mortgage?”

Before I answer the mortgage question, I want to define what discount points are and why some homeowners or first time home buyers will pay them.

Discount points represent 1% of the loan amount and are used to buy the mortgage rate down.

Discount points – not origination points – are prepaid mortgage interest that the homeowner or first time home buyer is paying upfront at closing to get a lower mortgage rate knowing that over time the homeowner or first time home buyer will save movey with the lower mortgage rate.

Paying discount points can be useful and can save the homeowner or first time home buyer money over time. Time is the critical factor here because the homeowner or first time home buyer has to keep the mortgage long enough to recover the upfront costs (or points.)

That’s why it DOESN’T make sense to pay discount points to get a lower mortgage rate if you’re in a an adjustable rate mortgage, also known as a ARM.

The reason is because the mortgage rate in the adjustable rate mortgage is fixed for a certain amount of time, then adjusts.

So the problem is that the mortgage rate can change or adjust before the homeowner or first time homebuyer recovers their upfront points.

In conclusion, homewoners and first time home buyers – it doesn’t make sense to pay discount points to get a lower mortgage ratre if you’re applying for an adjustable rate mortgage.

You have to do the math to calculate the recovery period, but in all liklihood – you will not have enough time to recover your upfront discount points before the mortgage rate adajusts.

The way to calculate this is to compare the mortgage payment for two different mortgage rates.

Take the difference in mortgage payment and divide it into the difference in lender fees – with discount points and without discount points. This will tell the homeowner or first time home buyer how long it’ll take to recoup the upfront discount points.

Mortgage Affordability – “Can You Change Private Mortgage Insurance PMI Payments?”

December 6th, 2011 |

Author: yroth

From a mortgage affordability or mortgage payment standpoint, PMI, also known as private mortgage insurance, is a big deal and is something, as a homeowner wanting to refinance or a first time home buyer, you want to pay attention to.

First, what is PMI?

PMI is private mortgage insurance that the homeowner has to pay in addition to their mortgage principal and interest payment that protect the Mortgage Company in case the HOMEOWNER defaults on the loan.

On a conventional mortgage, PMI is required to be paid if the loan to value ratio LTV is higher than 80%.

It has to be paid for 2 years after which time the homeowner can request that it be removed.

It can be removed at that time if there is more than 20% equity in the property.

On a FHA mortgage, in contrast, PMI which is called MIP or monthly insurance premium, has to be paid for 5 years and there needs to be 22% equity in the home for it to be removed.

Also, on FHA mortgages, MIP is required no matter what the loan to value LTV ratio is.

Now PMI premiums are calculated by what loan to value ratio tier you’re in.

What I mean is that the factors that are applied when calculating the PMI you have to pay depend on whether you’re loan to value ratio is between 80% and 84.9%, 85% and 89.9%, 90% and 95%.

So if the loan to value ratio is at 92%, you’re in the 90% to 95% tier and your premium is calculated based on that tier.

If your loan to value ratio is at 83%, then your in the 80.1% to 84.9% tier and it calculated based on that tier factor.

The PMI premium is going to be higher the higher the loan to value ratio tier.

So if you can reduce the loan to value tier you’re in by borrowing less or paying down the mortgage slightly, this may may sense.

For example, if you’re loan to value ratio is at 86% and your PMI is $200 per month, if you pay the mortgage down so the loan to value ratio drops to 84.9% and the PMI premium drops to $150/month because you’re in the lower tier, it may make sense for you to do that.

In conclusion, when trying to determine your mortgage affordability, PMI premiums vary according to the loan to value ratio and it may make sense to either borrow less or pay the mortgage balance down some to go into a lower PMI tier.

FHA Mortgage Questions – “What Is A FHA Streamline Refinance?”

November 23rd, 2011 |

Author: yroth

With mortgage rates very low, a lot people who are already in FHA loans are wanting to do a FHA streamline refinance.

What is a FHA streamline refinance?

Well, there are 2 kinds of FHA streamline refinance: one with an appraisal and one without an home appraisal. Obviously, most people want to avoid the appraisal as it’ll save them the appraisal fee – which ranges between $350 and $450.

In order to qualify for the FHA streamline refinance WITHOUT the appraisal, your new loan amount must be lower than then the original FHA mortgage loan amount.

So, let’s say that the original FHA loan amount that you’re currently in was $200,000.

In order to qualify for an FHA streamline refinance without the home appraisal, the new loan amount can’t exceed $200,000.

Simple enough.

With the FHA streamline without the appraisal, you are not able to finance your closing costs. So if your closing costs are $2000, you have to pay that out of pocket.

FHA will, however, allow you to finance the upfront mortgage insurance premium (UPMIP) that FHA charges, which is 1% of the loan amount.

Also, note that FHA will not allow you to streamline into a shorter term loan. So you can’t streamline from a 30 year fixed mortgage into a 15 year fixed mortgage.

Also, your monthly mortgage PAYMENT has to drop by 5%.

When underwriting the FHA streamline mortgage, a copy of your existing FHA note and HUD-1 settlement statement from the time you took out the original FHA mortgage is required. This will allow underwriting to verify the original FHA loan amount.

Debt to income ratios are not calculated when underwriting the FHA streamline refinance, which is why it’s called “streamline.”

A FHA streamline refinance WITH an appraisal is required when you’re borrowing more than the original FHA mortgage amount.

The FHA streamline refinance is a good loan type to get into if your currently in an FHA mortgage and have recently took it out. Also note that the FHA mortgage rates are the same as the FHA mortgage rates for a non-streamline FHA loan.

If you’ve been your existing FHA mortgage for 5 years – let’s say – you are eligible to stop paying the monthly mortgage insurance premium (MIP). This is a big deal.

Here’s why.

If you apply for a FHA streamline refinance, you will have to pay the monthly MIP again and it has to stay on the loan for 5 years and you’ll need 22% equity in the property to remove it – so this may not make sense even if you’re lowering your mortgage rate.

So the FHA streamline refinance will allow you to lower your mortgage rate and mortgage payment without having to go through the rigors of a normal underwriting process.

Should You Take Out An FHA Mortgage?

September 8th, 2011 |

Author: yroth

I get a lot of people asking me ”should I take out an FHA mortgage.” The short answer is “it depends.”

FHA mortgages provide many benefits over conventional mortgages; however, the FHA mortgage is designed for a certain borrower profile.

An FHA mortgage would be the right mortgage if you’re buying a new home and you only want to put down 3.5% as a down payment. This doesn’t always apply to first time home buyers. FHA mortgage are available for those who’ve already owned a home before – however, you cannot use a FHA mortgage for a second home or rental property.

A conventional mortgage requires 5% down payment and very good credit scores.

An FHA mortgage allows you to have mediocre credit.

In the “old” days, credit scores weren’t even a consideration for a FHA mortgage. Now most lenders won’t do a FHA mortgage with credit scores below 620. It’s going to be tough to qualify for a conventional mortgage with a 620 credit score.

An FHA mortgage would be the right mortgage if you’ve filed bankruptcy between 3 and 7 years ago. You won’t be eligible for a conventional mortgage with a bankruptcy filing within the past 7 years.

If you want to take the maximum mount of cash out of your home, the FHA mortgage will allow you to take cash out to 85% of the value of your home. On a conventional mortgage, your capped at 80% of the home’s value.

So, in conclusion, if you’re credit profile is good, you have equity in the home (if you’re refinancing) or if you’re putting down more than 5% on a home purchase, it is cheaper for you to go into a conventional mortgage.

I talk to borrowers who have great credit scores and have a relatively low loan to value ratio who are advised by loan officers or mortgage brokers to take out an FHA mortgage. WRONG ADVICE.

Either the mortgage loan officer doesn’t know what they’re doing or they’re trying to maximize their commission (as they will be paid more on an FHA mortgage) – all things being equal.

Again, the mortgage terms are better on a conventional mortgage (which is a mortgage that is bought by Fannie Mae or Freddie Mac) if you have a good credit rating and equity in your home.

For those of you who have filed bankruptcy between 3 and 7 years ago, have mediocre credit or have little equity in the home, the FHA mortgage is the better loan type.

FHA Mortgage FAQ – What’s A FHA Streamline Refinance? Do You Need An New Appraisal For The FHA Streamline Refinance?

September 6th, 2011 |

Author: yroth

If you’re currently in an FHA mortgage and are considering refinancing that mortgage, you may want to consider an FHA streamline refinance.

The FHA streamline is just what is sounds like – an faster way to refiance the FHA mortgage into another new FHA mortgage (with a lower mortgage rate.).

FHA streamline refinances can be with appraisals or without appraisals.

The benefit of doing the streamline refiance without the appraisal (in addition to not having to pay for a new FHA appraisal) is if you’re unsure about your home’s value or you think you may have no equity in the property or even if you think you owe more than the property is worth, you can still refinance your mortgage and lower your rate and mortgage payment

This way, an appraisal isn’t needed so the loan to value ratio guideline isn’t considered.

To do an FHA streamline without an appraisal you cannot borrow more than the original mortgage amount you borrowed – not including the Upfront Mortgage Insurance Premium.

Also, you are no longer allowed to finance your closing costs or prepaid interest or escrows – however you can finance the Upfront Mortgage Insurance Premium.

On a FHA streamline with an appraisal, you can borrow more than the original FHA mortgage amount.

In addition, (and this applies to FHA streamlines without the appraisal) you must have made at least 6 mortgage payments with no lates and your toal mortgage payment must drop by 5%.

If you have more than 12 months payment history, FHA doesn’t allow more than one 30 day late payment in the preceding 12 months.

If you’re going from a fixed mortgage to an adjustable mortgage ARM, the mortgage rate must drop by at least 2%.

If you’re going from a ARM to a fixed mortgage rate, the mortgage rate can’t increase more than 2% and your payment can’t increase more than 20%.

Please note: you cannot do a FHA streamline refinance if you’re currently in a 30 yr FHA and want to go to a 15 yr fixed FHA mortgage. So FHA won’t allow a term reduction for the streamline program.

Finanlly, discount points cannot be included in the mortgage if you’re doing a streamline with an appraisal and you want to finance your closing costs.

If you’re paying discount points to buy the mortgage rate down, you must show assets to support the cost of the discount points. So, if the discousnt points amount to $2000, you need to provide a bank statement showing you have the $2000.

In a nutshell:

Borrower must have made 6 payments to the existing FHA mortgage (no lates)
If existing FHA mortgage is over 12 months old, you can have 1, 30 day late, in the last 12 months, but must be over 3
months ago.
Benefit of streamline refinance -total mortgage payment must drop 5%.
If going fixed to ARM, rate must drop at least 2%.
If going ARM to fixed, rate can’t increase more than 2% (and payment cant’ increase more than 20%)
Can’t reduce mortgage term, so you can’t streamline from 30 yr to 15 yr fixed mortgage
Streamline without appraisal, – max loan is now current outstanding mortgage balance plus you can finance MIP, so
you can no longer roll in closing costs or prepaids

FHA Mortgage FAQ – What’s The Difference Between An FHA Mortgage And Conventional Mortgage?

August 29th, 2011 |

Author: yroth

A lot of mortgage questions I get are about FHA mortgages.

People I talk to do personalized rate searches then ask what’s the difference between an FHA mortgage and conventional mortgage? A natural question for someone shopping for a mortgage.

The first question I ask is “how’s your credit”?

For someone who has poor credit, an FHA mortgage may be a less expensive loan type.

If you have good credit, a conventional mortgage is a better mortgage. It’s that simple – really.

Also, if you have little equity in your home, FHA may be a better mortgage. Equity, by the way, is the difference between the current mortgage balance and what the home is worth.

FHA will allow you to finance a mortgage to 96.5% of the home’s value with mediocre credit. Still pretty good.

On a conventioanl mortgage, you can get 97% financing; however, your credit will have to be over 720.

If you want to take cash out of your home, FHA will allow you to go to 85% of the value of your home, while you’re capped at 80% for a conventional mortgage. The reason your capped at 80% is because it’s going to be tough getting a private mortgage insurance PMI company to write private mortgage insurance while FHA (or HUD) will insure the loan to 85% cash out of the home’s value.

Another difference that used to be in the favor of FHA is the mortgage insurance premium.

FHA mortgage charges a 1% upfront mortgage insurance premium MIP that is added to your loan amount.

So on a $200,000 loan, the upfron mortgage insurance premium will be $2000. Oh, by the way, you have to pay that no matter what the loan to value LTV ratio is.

FHA also charges a monthly MIP.

The monthly MIP premiums have increased as of April 2010, making them almost prohibitive.

Again, it doesn’t matter what the loan to value ratio is, you have to pay it for 5 years and you need 22% equity in the property before it can be removed.

On a conventional mortgage, there is no upfront mortgage insurance premium.

You will have to pay monthly PMI if the loan to value ratio is over 80%; however, you can request the mortgage servicer remove the PMI after 2 years and you have 20% equity in the property.

So, in conclusion, if your credit scores are good and you have equity in your home, a conventioanl mortgage would be a less expensive mortgage.

If your credit scores are mediocre and you have little or less equity in your home, a FHA mortgage may be better.

You can do a personalized rate search in the blue Amerisave Mortgage box on the right side of the screen.

It’ll show you conventional and FHA mortgage options, the differing mortgage payments as well as the FHA mortgage upfront and monthly mortgage premiums amounts. It’s a great tool.

Mortgage Video FAQ – “What’s The Difference Between A FHA Mortgage And Conventional Mortgage”?

April 3rd, 2010 |

Author: yroth

Watch this video:

http://www.YaleRoth.com In this video post Yale Roth answers one of the top mortgage FAQ “What’s the difference between a FHA mortgage and conventional mortgage”?

Yale outlines some of the differences between the two loan types and explains the benefits and drawbacks as well as which loan type would be more appropriate.

This video is very informative and will help people decide which loan type is better for them.

Yale Roth is a FHA Mortgage Specialist and provides mortgages for homeowners throughout the United States.

Call Yale at 561-350-7684 with any mortgage-related problems or visit his rate page at http://www.YaleHomeLoan.com

Yale Roth M.A., M.Ed

Archive for the ‘FHA Information’ Category

Is Your Mortgage Rate Higher If You Do A Cash Out Refinance?

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Why A 7/1 ARM Can Be A Smarter Mortgage Choice Than A 5/1 ARM

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Mortgage Questions – “Can I Qualify For A Mortgage With A Credit Score Below 620?”

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Mortgage Questions – “Does It Make Sense To Pay Discount Points To Get A Lower Mortgage Rate For An Adjustable Rate Mortgage?”"

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Mortgage Affordability – “Can You Change Private Mortgage Insurance PMI Payments?”

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FHA Mortgage Questions – “What Is A FHA Streamline Refinance?”

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Should You Take Out An FHA Mortgage?

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FHA Mortgage FAQ – What’s A FHA Streamline Refinance? Do You Need An New Appraisal For The FHA Streamline Refinance?

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