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The FHA 203(k) mortgage offers you the chance to purchase and repair a home, without having to deplete your life savings. With this, you could buy a home and include all related costs for updates and repair work, or a full renovation, into a single loan that’s fixed for 30 years. That is if you qualify for it.
How Do You Qualify for an FHA 203(k) Loan?
To be eligible for the 203(k), you have to satisfy specific requirements:
- Be the occupant-owner of the home you’re planning on renovating.
- A maximum DTI or debt to income ratio of between 41% and 45%.
- A credit score about 620 at the least, subject to lender approval.
- A loan amount, which includes both your purchase and remodeling expenses, that’s lower than the maximum limit for loans in your area.
- A down payment (home deposit) or home equity (if you’re planning to refinance) of about 3.5% or higher.
All prospective FHA 203k loan borrowers also need to pay mortgage insurance upfront, regardless of the amount of equity in your home or your down payment amount, which could increase your monthly mortgage payment amount. You’d also need yearly mortgage insurance if your loan to value or LTV ratio is 78% or higher or if your down payment is lower than 20%. This insurance would cover your lender in case you default. You’d also need to pay extra fees such as a supplemental fee of 1.5% of your repair costs, plus other charges for a title policy update and additional appraisal following the completion of your project.
The main difference in qualifying for a standard FHA loan instead of an FHA 203k loan is that you should qualify according to your renovation costs, plus your purchase price. For instance, if you need to buy or refinance a property with a value of $150,000 and fund $25,000 in renovation costs, you have to qualify for a home loan worth $175,000 and make a down payment or have home equity of 3.5%.
Whether you are purchasing a home that needs extensive repairs or are just looking to update a bathroom or kitchen before moving into your new home, the FHA 203(k) loan program might just be what you need to fund whatever you need to do. With this in mind, consult with an experienced FHA approved lender to determine if you’re qualified for the 203(k) mortgage.
When you decide to buy a home, you will want the best mortgage rates in Utah, or elsewhere. First-time home buyers normally shop around for cheap rates, but it is important for them to know that these rates will fall and dip. Therefore, it helps if you get a clear understanding of how these rates really work. This will put you in a position of strength and help you land a mortgage, which is much cheaper than the one you were willing to commit to, earlier.
How do the rates work?
The first thing to know about these rates is that they are really unpredictable. They keep changing over time. From around 1950, Wall Street linked it with bonds. When the value of the bonds drops, the mortgage rates drop too. It is, in fact, related to the age-old economic phrase of “demand and supply.” This sounds simple. You only have to keep track of the bonds’ prices to know when to look for low mortgage rates. But the truth is, only Wall Street has access to these details.
Make an educated guess
You can, however, guess the rates, by doing a little home work on your own. Look at the mortgage rates for the last thirty years. It also helps to look at the events in the last 30 years that helped lower the rates. Falling inflation rates is one of them as decreased inflation increases the demands for a mortgage, explains an expert from Citycreekmortgage.com. A weak economic data, natural disasters, calamities, war, and other such uncertain events. All kinds of national and global uncertainties increase the demand for bonds. On the other hand, rising inflation and a strong economy will increase the mortgage rates.
Mortgage rates also vary with your personal credit ratings. There are four types of mortgage loans with varying interest rates. Do your research well and check all types of mortgage loans possible, before you apply for a home mortgage.
If you think you will not qualify for a mortgage, you should ask your lender about an FHA loan. When done right, you can have the house you desire.
The Federal Housing Administration or FHA is the insurer rather than the lender. With their assistance, lending companies are more willing to be less strict with their borrower requirements. But, an FHA loan lender will still have a checklist of requirements.
Here are some of them:
You need to have been with an employer or otherwise regular employment for two years. You must also be of legal age and resident of the US with a Social Security number. Your monthly amortization, plus other costs such as insurance, credit cards, student loans, and car payments, should not be more than 43% of your income before taxes. You can probably get away with paying up to 50% if your lender can justify the exception.
Apart from your regular income, Primary Residential Mortgage, Inc. explains that a borrower needs to pay at least 3.5% of the loan amount plus any closing costs you might incur. You can get this from a family member if you do not have the savings. However, you must have at least a credit score of 580 if you want to avail of the minimum down payment. You can still get an FHA loan with the maximum loan-to-value ratio of 90% if you have a credit score between 500 and 579, but you will have to pay a down payment of 10%.
The FHA requires approved lenders to include the following requirements in addition:
·It is for a primary residence
·The property was appraised by an FHA-approved entity
·The property meets FHA minimum standards, e.g. good repair
·Three years out of foreclosure, with some exceptions
·Two years out of bankruptcy, with some exceptions
If you are hoping to qualify for an FHA loan, you need to get in touch with an FHA-approved lender. While the requirements are not as stringent as a regular mortgage, there are still qualifications. This list is just a few of the requirements.
Refinancing has always been a boon to mortgage borrowers from all walks of life. While it’s not for everybody, it can offer you different opportunities to help improve your financial situation.
Although it involves an appraisal, title search, and certain fees, replacing your existing mortgage certainly is worth your while if…
You Desire a Lower Interest Rate
Any experienced real estate agent in Fairbanks, Denver, Salt Lake City, or any other hot market, would say that a refi gives you the chance to reduce the interest you’re currently paying.
Apart from helping you save dollars, it also lets you build home equity faster and reduce your monthly repayments. Most agents would agree that a 2% decrease in interest is enough savings for the trouble.
You are Sick of Variable Rates
The unpredictable nature of ARMs can sometimes keep you up at night, as you would never know when your repayments would increase. It may start out small, but periodic interest rate hikes can give you a heavier financial burden to shoulder.
Converting to a fixed-rate mortgage can give you the peace of mind you’ve always wanted.
You Want to Shorten Your Term
Shortening the term, even if it means slightly increasing the monthly repayments, is a mark of a smart borrower. If your budget allows, this move promises to be a smart decision.
You Need to Fund Huge Expenses
A cash-out refinance lets you tap into you property’s equity to access hard cash. This is useful when you need to finance something big, like a college tuition fee, a home remodel, or literally anything cashed-out money can buy.
You Wish to Consolidate High-Interest Debts
Debt consolidation is another brilliant utility of refinancing. But since starting out a new mortgage is a serious financial responsibility, exercise your due diligence before signing on the dotted line.
According to Hedgecock Group Real Estate, whatever reason you may have, it’s best to consult an experienced real estate firm to help you weigh all possible the pros and cons of this loan. As experts would say, only ignorance makes refinancing a risky bet.
As a homeowner, the major cause of a headache is the amount of interest paid on a mortgage program. Finding out that interest rates have dropped could come as good news. You might even be thinking of refinancing your mortgage. But, refinancing a mortgage comes with its ups and downs, especially in a low-interest situation. To know if refinancing at this particular season makes sense, you’ll need to pay close attention to some details.
Interest rate drop
Do not rush to calculate the percentage of the interest rate you wish to have when you refinance, says Altius Mortgage Group. Check to see how much you stand to save should you refinance. If you have a mortgage that is $100,000, it wouldn’t make sense to have a 1% reduction.
Time you plan on keeping the mortgage
When you consider refinancing, you’ll have to pay the closing costs just like you did when you were purchasing the home. If you’re only planning on selling your house after 2 years, you may not break even by refinancing. Rolling the closing costs into your mortgage instead of paying them in advance only means that you’ll be paying interest. Factoring this expense in your calculation will help you determine if it’s worthwhile to refinance.
Refinancing on a short term
Refinancing a mortgage in which you have 20 years left on a new 30 year mortgage will not save you any money even if there are lower interest rates, Nevertheless, you can refinance a 20-year mortgage into a 15 year one substantially reduces the amount of interest rate you’re required to pay before you own the house.
When done properly, refinancing can have amazing benefits such as increasing your long term net worth, meaning the amount you could have paid on interest could be used towards another financial goal. You can also have more money to work with on a monthly basis.
Mortgage refinance can give you a chance to correct a mistake made during your application of a previous loan. In fact, doing so might even allow you a better mortgage plan. To better understand the process, it is important to consult lending companies to know if refinancing will work for you.