LOAN ALTERNATIVES FOR FHA

The Federal Housing Administration (FHA) has been around since 1934 as part of the National Housing Act, and has provided many people the opportunity to own a home with little down payment.  The minimum down payment required by FHA today is 3.5% of the sale price, a very affordable avenue to any borrower. 

Part of the expenses of receiving a loan from FHA is insurance to cover the loan amount (not homeowners insurance).  FHA insurance payments include two parts: an upfront mortgage insurance premium (UFMIP) or one-time payment and “annual mortgage insurance premium” which you pay every month.

On April 18^th 2011, FHA will be increasing its annual mortgage insurance premiums for new loans submitted on and after that date.  The Up Front Mortgage Insurance Premium (UFMIP) of 1% of the loan amount (collected at loan closing) will still remain unchanged.

Ocean Communities is very proud to be able to offer such a great program that has helped so many over the years, but to assist with the rising cost of funds, PLEASE, make sure you know about our CU Promise 97 Program.

CU Promise 97 has features truly designed to help Ocean Communities FCU borrowers save those hard earned pennies.  With CU Promise 97, we require just 3% down payment, and there is NO Up Front Mortgage Insurance Premium (UFMIP)!  The monthly or annual mortgage insurance premium (which is needed because you are financing over 80% of the value of the home) is stable.

To show you how much the CU Promise Program could save you compared to FHA let’s look at the following scenario:

Purchase Price of a home at $200,000:

FHA – 3.5% down Payment ($7,000) + UFMIP of 1% ($2000) = $9000

CU Promise 97 – 3% Down Payment = $6000

CU Promise 97 would save our borrower $3000.

(Keep in mind there are additional closing costs with both scenarios, however, I did want to compare the area where a lot of the down payment and costs are derived from between the two types of loans.)

How much is too much house?

With the amount of inventory still increasing, there are a lot of homes on the market to choose from.  Buying a home is very exciting, but don’t get caught up in the game of extra amenities that have a higher sale price.

Generally speaking, most home buyers secure a 30-year note when obtaining financing.  You have to agree, 30 years is a long time, so also visualize that there is enough time to add amenities as years go on and not get tied down with a large payment for amenities you “have to have now.”  Be patient.  Talk with one of Ocean Communities staff members to discuss a Savings Plan designed for your future needs.

A tip for your home buying experience would be to review what you feel you can afford.  Because you may be “preapproved” for a certain amount, doesn’t mean that is what is best for you – this is something you will need to decide after you take a close look at your budget.

Lenders will look at your housing ratio as a factor on whether or not a loan amount may or may not be right for you.  Your housing ratio is the ratio between your proposed housing payment (principal, interest, taxes, and insurance) and your gross monthly income.  (Example: $1500 housing payment / $5000 gross income = 30% housing ratio)  Generally this ratio is desired to be around 29%, but can be higher and still get approved.

Keep in mind that you don’t take home gross pay; you take home net pay, which is the pay after taxes are taken out.  So technically, the ratio is higher when you are comparing the actual money you take home each week versus the monthly housing payment that will be yours for the next 30 years.  Homeowners will also face utility bills, home maintenance, etc. to keep up with for the time you own your home.  A lender doesn’t calculate utilities, maintenance, or items like that when approving you for a loan, so it doesn’t hurt to complete your own analysis of what you can afford!