Archive for the 'Affordable Payments' Category
FHA Access–A Safe Way to 103% Financing
A couple of weeks ago I wrote an article called Qualifying For a Home Loan: 6 Reasons to Consider FHA. Not all lenders have been around long enough to remember FHA loans. Those who have remember the extra requirements that made FHA loans unpopular with sellers. But it’s a buyer’s market today, and all that has changed.
Last week I originated my first FHA Access loan in 7 years, and I was reminded what a great program it is. FHA Access is a 2nd loan that pairs with a traditional FHA 1st and covers the 3% down payment and all of the buyer’s closing costs. The Access loan is an 8%, 20–year fixed rate mortgage for up to 6% of the purchase price.
While FHA loans have no income limits, Access does. The borrower’s income may not exceed 120% of the median income for the area. For most of the Sacramento region, the limit is $78,480. That’s pretty generous and shouldn’t be a problem for most people. FHA loans are no longer subject to strict debt to income ratios—instead we submit them through automated underwriting—Access debt to income ratios cannot exceed 43%.
With all the exploding 100% loans out there, FHA Access offers a path to sustainable home ownership without a big down payment.
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FHA loans are the forgotten toy in the box. Gathering dust like some old Atari game while we’ve played with our shiny new Xbox, FHA loans years ago lost their appeal. It’s time to reconsider.
Here six reasons every first-time buyer should consider an FHA loan.
100% financing. FHA was the first to offer 100% loans. FHA loans actually require a 3% down payment, but they can be combined with a 2nd loan to cover the down payment and closing costs. If you don’t need that 2nd loan because Aunt Betty wants to help, FHA will allow her to “gift” all of the necessary cash. You don’t have to contribute 5% of your own money to the purchase. While FHA will require you document your income—no “liar loans” allowed—they are often lenient with qualifying ratios, particularly now with the use of Automated Underwriting.
Okay, in our effort to create affordable payments, we laid a foundation with the 15 and 30 year fixed rate loans in Part I. We stretched the repayment term out to 40 and 50 year loans in Part II, and then looked at shorter term intermediate arms—the 3/1, 5/1 and 7/1–-in Part III. In Part IV, we looked at interest-only loans that eliminate the principal portion of payments entirely.
Now, let’s pull the cover off the Pay Option ARM and see what lies beneath. Is this controversial creation a useful tool or a dangerous weapon? Will it solve a unique challenge or insinuate itself into your life like a Trojan Horse only to destroy your dream of home ownership from within? Opinions on Pay Option ARMs tend to come in black and white. But nothing in life is that simple, is it?
To begin, let’s get something clear. There is no such thing as a 1% mortgage. That should go without saying. But I am continually amazed at all the smart people who believe in ghosts. We’re all guilty of wishful thinking, but if you really believe you could get a 1% rate when all your friends were getting 6%, then perhaps you deserve a surprise. As my financial planner says about foolish investing, money tends to be returned to its rightful owner.
In Part II of the Creating Affordable Payments series, we looked at 40 and 50 year loans to see if the advertising claims about lower were true, and we found that these loans do not really help, and the overall interest cost is much higher.
In Part III , we looked at Intermediate ARMs to see if they were the answer to today’s most common challenge. Unfortunately, with the inverted yield curve in U.S. Treasury securities, the rate on a 5/1, 7/1, or 10/1 ARM is often higher today than the 30 year fixed.
So today let’s have a look at interest-only loans to see what they can do.
Creating Affordable Payments (Part III)
3/1, 5/1, 7/1 and 10/1 ARMs 
In Part I we laid the foundation by briefly looking at 15 and 30 year loans. These traditional products offer safety, security, and in the case of the 15 year, save a pile of money. What they don’t do well is to create affordable payments.
In Part II, we examined the heavily promoted 40 and 50 year loans to see what they’re made of. It turns out they’re more sound bite than substance. They do little to help lower payments and they are far more costly in the long run.
So now let’s look at the “intermediate ARMs”, also sometimes called 3/27, 5/25, etc.
Creating Affordable Payments (Part II)
40 and 50 year loans
These days, a lot of clients ask about 40 & 50 year loans. The industry has advertised these as a way to create affordable monthly payments.
The idea sounds good. But do they fulfill that promise, or is this just another marketing gimmick? Let’s have a look.
Creating Affordable Payments (Part I)
15 and 30 year fixed rate loans.
Creating affordable payments is one of today’s biggest challenges. Home prices have risen faster than incomes. We qualify more people today than ever, but payments are often still just too high. There are lots of ways to create affordable payments, but the sheer number of loan programs causes confusion and often leads to poor decisions.
When affordable payments are the issue, I like to start by giving clients a simple way to clarify the choices and understand the trade-offs. This is the first in a series of posts that follows that conversation.