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Posted: Sat Feb 28, 2009 4:00 pm Post subject: Big Kiddie FHA loan

Let's see if I understand... do you think we should get an FHA loan? On the plus side, my homemaker spouse and I both have 800 FICOs, a couple hundred thousand in assets (albeit mostly depressed), and were homeowners several years ago. On the other hand, my income over the last two years as a freelancer probably won't be enough to win approval for a $400k+ loan on its own (total debt/income ratio would be like 48%). I recently learned that an FHA loan, unlike other programs, would allow me to add my parent as a non-occupying co-borrower and have his income (which is more than enough) count toward the total without a separate ratio limit for me. Sounds like it would work, but...

Can we get an FHA loan with 25% down?

I assume the answer is yes, but that it would still be necessary to pay mortgage insurance upfront equal to 1.75% of the loan, or as part of the financed amount. If the FHA base rate and conventional rate were both 5.25% and we financed the mortgage insurance, that would basically raise the rate on the FHA to 5.4% by my calculations. Does that sound right?

Of course, the base rates won't always be the same. I see one bank quoting a 30-year-fixed at 5.25% alongside an FHA 30-year-fixed at 5.5% (zero points on both). Do you think the higher rate for the FHA includes mortgage insurance? If not, the comparable rate would be more like 5.65%, which still seems like a good deal if the conventional route is not open to us.

In my county, the conventional loan limit is $417,000, whereas the FHA limit is higher than that. Assuming we qualify, can we really borrow at the higher FHA limit (without getting into jumbo territory)?

Can we (or the seller) pay 2-3 points on an FHA loan? Sounds silly, but the FHA loans are so often used for folks with little cash down, it's hard to find out what the deal is in other cases.

Any light you can shed would be much appreciated. In the old days, of course, we would have been candidates for stated income.

msnover92571 · Posted: Sat Feb 28, 2009 5:37 pm Post subject:

Yes with scores of 800 and 25% down you should be fine. Im not sure about the amount the company would finance you for. And there is a limit for FHA loans in certain states. FHA only requires 3.5 percent down.

jameshogg · Posted: Sun Mar 01, 2009 12:17 am Post subject:

Hi Guest,

If you are looking for a stated income loan, then I think it will be difficult for you to get such a loan. In today's market, lenders have stopped giving stated income loans.

The credit score that you have mentioned is quite good and thus, you will be able to apply for both FHA as well as conventional loan. As far as points are concerned, you can pay 2-3 points in order to get the loan. Apart from this, as msnover has said, FHA loans require 3.5% downpayment. If you pay a downpayment less than that, then you will be require a mortgage insurance.

Thanks

evolovik26 · Posted: Sun Mar 01, 2009 10:01 pm Post subject:

ignore Jameshogg cause i think he doesn't know the answer to your questions.

Here we go from the top.

Non-occupying borrowers are totally ok with FHA.
Your parents would have to qualify with their debts as well.

Can we get an FHA loan with 25% down?
Yes you can get an FHA loan with as little as 3.5%

would still be necessary to pay mortgage insurance upfront equal to 1.75% of the loan, or as part of the financed amount?
Yes it would all FHA loans come with mandatory upfront MIP, you will avoid the monthly MIP with 20%+ down though

If the FHA base rate and conventional rate were both 5.25% and we financed the mortgage insurance, that would basically raise the rate on the FHA to 5.4% by my calculations. Does that sound right?

1st - conventional rates are different from FHA
2nd - If you would finance the MIP you would be technically increasing your interest rate by 2/10th over a similar loan without 1.75% financed MIP

I see one bank quoting a 30-year-fixed at 5.25% alongside an FHA 30-year-fixed at 5.5% (zero points on both). Do you think the higher rate for the FHA includes mortgage insurance? If not, the comparable rate would be more like 5.65%, which still seems like a good deal if the conventional route is not open to us.

FHA is not Conventional. And you are answering your own question. If you can only do FHA why compare it to Conventional at all? And no the advertised rate does not include upfront MIP. And different banks will have different rates on different days. And what is advertised is not necessarily always the best or exact.

In my county, the conventional loan limit is $417,000, whereas the FHA limit is higher than that. Assuming we qualify, can we really borrow at the higher FHA limit (without getting into jumbo territory)?

Yes you can. FHA is government subsidized and what government wants the government does.

Can we (or the seller) pay 2-3 points on an FHA loan?

Yes. The seller can pay up to 6% of the property value to cover any expenses associated with the loan, excluding the 3.5% down.

You can pay as many as you like

I'm assuming this is to buy the rate down?

Additional things to know:

Rate will vary from day to day and from bank to bank.

If you plan on staying in your home for a long time its a good idea to pay origination and or discount points to get the better rate. Usually if its worth 1/3 of 1% to buy rate down 1/8th of 1% or less its a good deal for you in the long run.

Best regards

email me if you have additional questions.

evolovik26 · Posted: Sun Mar 01, 2009 10:06 pm Post subject:

oh btw you might be able to qualify for Conventional financing with 48% DTI if your credit is as good as you say and you putting 25% down so talk to someone who can look at all of your options. You will be limited to the 417k loan size on Conventional though.

gmakerley · Posted: Mon Mar 02, 2009 9:38 am Post subject:

eugene has provided suitable and sensible answers to your questions. one thing i can add that will be beneficial concerns your ratios. i have seen, and continue to see, fha loans being approved with a 48% ratio (and higher), so that should not discourage you from shopping fha, if that makes sense to you.

you seem to be in great shape for a conventional loan, with high credit scores, and good down payment, so if rates are skewing lower on conventional, your best bet may just be there. keep an open mind, though.

Guest

Thanks a lot, Eugene, for answering my questions!

jveenstra · Posted: Mon Mar 02, 2009 2:54 pm Post subject: Big Kiddie

All above basically good and sound advice.

With a 30 Year Fixed FHA loan, you still pay monthly Mortgage Insurance Premium(MIP).

If your debt ratio is 48%, the automated computer underwriting system may approve with down payment and credit score and reserves as you note them to be. If not approved at a 48% debt ratio, I would bet money it would be approved at 45% debt ratio. If you have the assets, make down payment higher or pay points to buy down the rate or pay points for temporary buydowns--whatever it takes to get debt ratio at 45% or less if 48% does not work.

An FHA loan will work, especially with a coborrower or cosigner. It makes no financial sense at all, however, to get an FHA loan with a monthly insurance premium payment that must be kept at least five years and on top of that increase your mortgage to cover the UpFront Mortgage Insurance Premium, if you can get a conventional loan.

If you can not get a conventional loan, do an FHA loan.

In what state is the property in??? While there are few, if any, national stated income programs, there are local bank ststed income loans in certain states and counties.

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