Hi Again! Stacey Christopherson with C4 Elite Real Estate team and Coldwell Banker here. We are here today with Nigel Farnsworth from American Pacific Mortgage. I want to pick his brain on loan programs. As you know we have blogs you may have seen on VA, FHA and Conventional loans. Having a full-time lender here to answer our questions is a huge asset. So, I want to get more details today about FHA loans. There are many ins and outs with every loan program so hopefully we can clear up any questions today. Otherwise, as always, you can call either myself or Nigel from or website. All of our information is there.
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An FHA loan is a government insured loan. FHA stands for Federal Housing Administration. It is very lenient with first time buyers. You can finance in a fixed rate loan with no money down through the bond programs in the State of Utah. Additionally, there are down payment assistance programs as well. Nigel says, “FHA is probably one of my favorite loans. It is not as strict as far as credit is concerned. So somebody might have a credit blemish here or there and it does not have a huge impact on them as it might on a conventional style loan.”
Again, FHA is very lenient on credit scores. They will allow credit blemishes. In fact, you can do financing on an FHA loan while you are in a Chapter 13 Bankruptcy. Or under special circumstances you can take out an FHA loan when you have just had a Chapter 7 discharge. As far as credit score goes, at American Pacific we can go as low as a 550-credit score. This is one reason the FHA loan is a great program. Nigel goes on to say, “We do quite a few loans with lower credit scores and the minimum down payment is 3.5% of the sales price.”
Typically, with the FHA loan, the down payment is 3.5% of the sales price. However, one way to avoid a down payment is talking to your lender about using bond program from the State of Utah, Utah Housing Programs or even a city grant. This allows the buyer to purchase a home with no money down. Grant programs are everywhere currently, through the State of Utah. Each county has city grants and down payment assistance programs. Right now, in Provo, there is one for $10,000 which is the highest seen to date. Davis County which serves Layton and other cities, and Weber county have $5000 grants as well right now. Bear in mind, the county grants have specific requirements. Most of them are adding to the property a silent lean. For example, if you borrow a $5,000 grant, you may have a lien on your property. However, when you sell the home, that lien is paid off along with the first mortgage. This is a 0% interest and again is fairly lenient. Be sure to call Nigel or your lender for more information on how the grants work.
Another way to avoid the down payment is the FHA Loan program may let you take the down payment in the form of a second mortgage. This loan is amortized over a 30-year time span. The second mortgage is always 2% higher than the first mortgage’s interest rate. It is a much smaller amount due each month along with the primary mortgage payment.
The first step to obtaining an FHA loan is the loan application. Every lender will need an application filled out to determine where the buyer falls into as far as credit score, DTI etc. As mentioned above, there are several different loan programs, so the application will help your lender figure out which program is best for you. The loan application at American Pacific can be done on a phone app or on your laptop. Ask an agent with the C4 Elite RE Team to send you the app for your phone. Once you fill the application out you will receive a call from the lender. At that time, you do want to set up an in person meeting to discuss which loan program is best for you.
Contrary to the credit score leniency, the interest rates are not always as flexible. Nigel explains, “Sometimes with other programs you can have low level price adjustments based off credit. Or perhaps the adjustment comes from the property type. With an FHA loan, those are minimal adjustments. You can have a credit blemish, or you can have a lower credit score however, mortgage insurance is consistent through the life of the loan and it is the same for everybody. The rates do not differ much depending on score. If you start dropping below a certain score, you could see some adjustments, but they are not that egregious.”
Private Mortgage Insurance is a part of the FHA Loan program. There is a monthly premium and an annual premium. The monthly payment is broken down into principle and interest, homeowner’s insurance, taxes, and mortgage insurance. Additionally, if you are purchasing a townhome for sale in Layton, UT you may also have the monthly HOA fee. The mortgage insurance is a calculation for everybody that it uses. There is also an upfront premium that you finance into the property. For example, the sales price x 3.5% is added to your total loan amount. It is unfortunate that you have it twice and might be a downfall to this great program otherwise.
PMI is there for the life of the loan. The only way that you can get rid of it is to refinance out of that particular loan. Of course, there are ways around this. If you put money down or you amortized the loan for 15 years rather than 30 years. You may be able to get rid of the mortgage insurance, however, you must have it for a guaranteed time in order to refinance. You must also have at least 3.5% equity in the home. Your C4 Real Estate can run a market analysis for your home to see where you might be with equity. There is no penalty on the FHA Loan program for refinancing or paying the loan off early. Anytime you refinance you will have closing costs etc. but often those can be rolled back into the loan amount. Always, talk to your lender about these specifics as they are different for everyone.
Equity might be one of the easiest things to find these days, especially if you have owned your home for 3 years or more. The real estate prices went up 3-5% in 2018 causing values to go up. Again, if you are just curious or are thinking of selling your current home, give us a call and we will help you determine current market value. Check out our website for current listings. Click on the “Buying” tab to see all our informative blogs on 30 Days to Buying a Home in Utah.