New Maximum Conforming Loan Limits for 2020

Posted on November 27, 2019 by - Local Michigan, Mortgage Rates, Refinance

2020 Conforming Loan Limits

Conventional Loans are now bigger and better. The Federal Housing Finance Agency (FHFA) announced the new conforming loan limits for mortgages sold to Fannie Mae and Freddie Mac in 2020.

In most of the U.S., the new 2020 maximum conforming loan limit for one-unit properties will be $510,400. This is an increase from $484,350 in 2019.

Loan Limits by Property Type

  • 2020 One-Unit Loan Limit: $510,400
  • 2020 Two-Unit Loan Limit: $653,550
  • 2020 Three-Unit Loan Limit: $789,950
  • 2020 Four-Unit Loan Limit: $981,700

How are Conforming Loan Limits Calculated?

The new Conventional Loan Limit of $510,400 is the baseline limit for one-unit properties in United States. There are certain areas in the country that are considered to be high cost, such as Alaska and areas of California.

In order for these areas to be deemed as high cost, 115% of the local median home value must exceed the baseline loan limit for that county. The high cost loan limited in these areas will increase by 150% of the baseline.

This makes the maximum loan limit for these areas $ 765,600. A map of the U.S. counties and their maximum loan limits can be found here. There are no counties in Michigan that are considered to be a high cost area.

Are there loans options for over the Conventional Loan Limit?

There are mortgage options available if your require financing over $510,400. If the loan amount exceeds the conforming loan limit, the mortgage is called a jumbo loan.

These non-conforming loans follow a different set of guidelines and rates than conforming loans. As a Mortgage Broker, Riverbank Finance is able to offer a wide variety of Jumbo loan options with low rates and low down payments.

Apply for a Conventional Home Loan

A conventional mortgage is the most popular home loan type. Conventional loans offer some of the lower mortgage rates and payments available for buying a home or refinancing. To apply for a Conventional Home Loan call Riverbank Finance today at 1-800-555-2098.

Request Information Now!

Refinancing a Mortgage After a Divorce

Posted on November 4, 2019 by - Local Michigan

refinance after a divorce

Getting a divorce is never a fun experience. Moving on after a breakup does not have to be hard when refinancing a mortgage after a divorce. Unfortunately 50% of marriages end in divorce and 60% of these couples are homeowners. This means that you are not along when it comes to refinancing after a divorce.

Learn More about Refinancing

There are several ways to handle a marital home after a divorce. Here are some tips to make sure you are successful at refinancing your home loan after a breakup.

If a home is jointly owned with both people on a mortgage, there is work to be done following a divorce. First step is to decide what will be done with the house. One person may choose to keep the home, or they may agree to sell the home.

Selling a Home after a Divorce

Selling the home will pay off the mortgage and be a clean cut separation. This may be an easy financial solution but forcing children to move out of the home they grew up in may be a tough decision.

Ask Questions about Selling your Home

It may be a difficult decision but many times, a single spouse may not be able to afford a home that was purchase for a dual income family. The Debt-to-Income ratio of either spouse alone may be too high to qualify for a mortgage.

If the only solution is to sell the marital home, here is how it would work. Both people would need to sign at the closing to release the title to the property for the sale. The proceeds would be split equally or according to the divorce decree.

Keeping a Home after a Divorce

If one person chooses to keep the home, the next step is to figure out how it will be handled. If there is significant equity in the home, a cash out refinance may be required to pay off the departing spouse.

Cash Out Refinance for a Divorce

The person choosing to keep the home would need to apply for a cash out refinance mortgage. The process would require an appraisal for the home which would determine the market value.

Most cash out refinance home loans will allow you to finance around 80% of the home’s value. For example, if a home appraises for $200,000, you could finance around $160,000 a cash out home loan. The proceeds from the refinance would be split according to the divorce decree.

Refinancing an Ex-Spouse off a Mortgage

If there is not much equity in the home, the spouse retaining the home may simply need to do a rate and term refinance of the mortgage to remove the ex-spouse. They would apply for a home loan in only their name and the new mortgage would simply pay off the mortgage that was held jointly.

Mortgage Rates for a Divorce Mortgage

Home loan rates for a divorce mortgage would depend on the mortgage program, loan amount and credit score of the borrower. The new mortgage would be subject to current market rates which may be higher or lower than the current mortgage.

Court ordered property division is where the judge requires the property to be refinanced or sold. If one person is retaining the home after a divorce, they may be forced to complete a refinance to remove the ex-spouse.

Even if the mortgage rates are higher than the current home loan this may be the only option. Typically courts will split assets equally which may force a refinance or sale.

Tips for Refinancing a Home after a Divorce

If a mortgage is held jointly and will need to be refinanced after a divorce, it is important to keep the loan paid on time. Even if you will be the departing spouse, a divorce does not release from the liability for debt.

Read about Credit Tips

The current lender may still hold you and and your spouse liable to ensure timely payments. If mortgage payments are more than 30 days late, they will be reported negatively on both credit reports. Late payments may affect your ability to refinance or to buy a new home in the future.

You May not have to Refinance After a Divorce

There are circumstances where a spouse may retain the home and not have to refinance after a divorce. These scenarios include:

  • The spouse retaining the home is the only one on the mortgage.
  • The property is owned free and clear.
  • You can offset assets in your divorce settlement as an alternative to refinancing.
  • The couple has enough liquid assets to pay off the mortgage.
  • It was not a requirement in the divorce decree to refinance.

Speak with a Mortgage Broker about a Divorce Refinance

If you are considering a divorce or have already complete a divorce, it is important to speak with an experience mortgage broker. A mortgage broker will help you to review your mortgage options to find the best fit for you and your ex-spouse.

To speak with a mortgage broker about your divorce call us today at 800-555-2098 or request information below:

Request Information Now!

Feds Cut Rates But Not Mortgage Rates

Posted on October 30, 2019 by - Buying a Home, Local Michigan, Mortgage Rates, Mortgage Tips

Predicting Mortgage Rates

You may have heard that the Federal Reserve has been cutting rates to slow economic slowdown. Industry experts predict that they may cut the Fed rates again this week. It would be a surprise to the economy if they did not follow through with another cut. With this said, it is important to know that this does not mean that mortgage rates will be lowered.

Get a Mortgage Quote

The only mortgage rates that may be tied to the Fed Funds Rates are home equity lines of credit (HELOCs). When it comes to primary 1st mortgages the effects have already taken place. This is because the bond market dictates mortgage rates in real-time whereas the Fed only meets every 6 weeks.

Bond traders use expectations of what the Feds may do when trading bonds which determines mortgage pricing. This is what they have been doing for weeks and weeks up to this point.

“This leaves more potential for mortgage rate increases rather than rate drops. “

Even when it comes to long term rates like mortgages, they do not always follow the Fed Fund Rate trends. Currently, longer term loans are low relative to Fed Funds Rates. This leaves more potential for mortgage rate increases rather than rate drops.

Ask a Mortgage Broker

With this being said, borrowers should not focus on the Fed’s cuts/hikes. They should measure if this very moment makes sense to refinance or upgrade to a larger home.  The current mortgage rate volatility makes it nearly impossible to predict if rates are going up or down from here.

Mortgage rates are already near historic lows. If you are interested in a mortgage quote, your preferred mortgage broker, Riverbank Finance would be happy to run the numbers. Call us at 800-555-2098 or request information below!

Request Information Now!

What are Today’s Mortgage Rates?

Posted on September 15, 2019 by - Buying a Home, Local Michigan, Mortgage Rates, Mortgage Tips, Refinance

compare mortgage rates in michigan.

There is a lot of confusion when it comes to mortgage rates. You may see rates on the news, TV commercials, internet ads and promotions at your bank but what really are the today’s mortgage rates?

Get a Mortgage Quote

The answer to this question is not straight forward to understand. When it comes to mortgage rates, there is not just a rate that a bank or lender is giving out for the day. Mortgage rates are determined by several factors including:

  • loan type
  • credit
  • loan-to-value ratios
  • loan term
  • loan costs
  • location
  • property type

Mortgage Rates for Loan Types

When comparing mortgage rates, it is important to look at what loan type is best for your situation. Generally speaking, government insured mortgages such as FHA Loan, VA Loan and USDA loans have lower rates than Conventional Loans.

While the rates may be lower, there are other factors to consider such as up-front funding fees that the government charges and mortgage insurance premiums. If you have great credit or a large down payment, you may be better off with a conventional mortgage loan.

Get a Mortgage Quote

Mortgage Rates based on Loan-to-Value Ratios (LTV)

Mortgages are based on risk for the investors that fund the loans. One measurement of risk is the loan-to-value (LTV). For example, if a loan is based on 50% of the home’s value, there is little risk of loss for the lender if the home is foreclosed therefore mortgage rates are lower.

Mortgage rates based on LTV is not always linear. For example, mortgage rates are typically lower for a 15% down payment than if a borrower applies a 20% down payment. This is due to loan level price adjustments (LLPAs).

While this is counter intuitive, this is because a lender would have some form of mortgage insurance to protect against loss at 15% down but none at 20% down. To get the lowest rates based on LTV, we recommend a 25% down payment.

Mortgage Rates Based on Loan Term

Mortgage rates vary based on the term of the loan. The shorter the loan term, the lower the interest rates. 15 year fixed rates mortgage may have a lower rate than a 30 year fixed rate mortgage.

With shorter terms, the rate may be slightly lower however the mortgage payment will be more because you are repaying your loan more quickly.

Today’s mortgage rates are very close for 15 year and 30 year mortgages. It may make sense to seek a 30 year fixed rate and simply pay extra principal payments.

Loan Fees and Discount Points for Mortgage Rates

The biggest factor when comparing mortgage rates is the costs to get the loan. Be certain to compare the lender fees and discount points required to get the advertised rates. Most of the big banks and online lenders advertise mortgage rates with thousands of dollars in costs to get the loan.

Many banks, lenders and credit unions have costs such as applications fees, underwriting fees, processing fees and origination fees which add to the costs to get a mortgage (Riverbank has Zero Lender fees!).

To get the lowest mortgage rate, you may have to pay discount points. Discount Points are paying extra fees up front to get a lower than market interest rate. Some people may choose to do this because in the long run a lower rate may save them more money than the up-front cost.

For example, you may have the option to pay $2,000 extra at closing to get a .25% lower interest rate; let’s assume this saves you $50 per month; the break even point would be $2000/$50 = 3.3 years. In this example if you have the mortgage more than 3.3 years you will save by paying discounts points up front.

In some scenarios paying points may be beneficial, however, discount points are one of the most misleading charges. When the advertised interest rates look very low, it is important to ask what fees are required to get that rate. Many times the big banks and lenders require large upfront costs to get their advertised rates.

How to Compare Mortgage Rates

When shopping for a mortgage, there is no truly easy way to compare mortgage rates on your own. Each bank and lender quote rates, fees and charges differently which makes it hard to determine what loan is best for your situation. The best way to compare mortgage rates is to talk with an independent mortgage broker.

Independent mortgage brokers are experience mortgage experts that can advice clients on how to get the best mortgage for their needs.

Why Use a Mortgage Broker to get a Home Loan?

Using a mortgage broker to get a home loan is the best way to get a mortgage. A mortgage broker will spend time learning your goals and requirements and compare rates at multiple banks and lenders simultaneously.  Mortgage brokers offer wholesale rates which may be lower than a consumer can get going through a retail bank or lender.

Talk to a Mortgage Broker

The best part about using a mortgage broker is that they do not charge you any fees for their services (for most loan products). They are compensated only by the lender for assisting the clients through the mortgage process. The end lender would rather compensate a mortgage broker for a loan because they are cheaper than having to pay employees as loan officers for their bank directly.

Clients can save a large amount in up-front costs and get a very competitive mortgage rate by working with a mortgage broker.

If you are looking to buy a home or refinance your current mortgage, talk with a mortgage broker today by calling us at 800-555-2098 or requesting information below.

Request Information Now!

How to Lower your Interest Rate without an Appraisal

Posted on July 10, 2019 by - Local Michigan, Mortgage Rates, Mortgage Tips, Refinance

How to drop your mortgage rates. No Appraisal Required.

Did you know that many loans do not require an appraisal to drop your interest rate on your mortgage? One of the largest hurdles for people considering a rate reduction refinance is the up-front cost of an appraisal.

The good news is that there are options to lower your rate with no appraisal required!

How Much Does an Appraisal Cost?

Many times, when you get a home loan, an appraisal is required to report to the lender the condition of the home as well as the market value. By law, appraisals are completed by independent 3rd party licensed appraisers.

They typically charge the buyer up front for their services. The cost of an appraisal can vary based on the property location and property type. The average cost of an appraisal is between $450 and $550.

Can I Refinance a Conventional Loan without an Appraisal?

Refinancing a conventional loan can be done without an appraisal. While not all will qualify, Fannie Mae and Freddie Mac both offer property inspection waivers which are eligible on both Purchase Loans and Refinance Loans.

To get a property inspection wavier on a Conventional loan, you will need to have at least 20% Equity (80% Loan to Value). This is because Private Mortgage Insurance companies always require an appraisal to approve the PMI.

NOTE: Not all banks and lenders are able to offer Fannie Mae and Freddie Mac backed mortgages. This means that if you were told you are not eligible by another lender, Riverbank may still be able to help with no appraisal required!

Read about Conventional Loans

What restrictions are there to do a Conventional Loan without an Appraisal?

There are several restrictions on Conventional Appraisal Waivers Including:

  • No Cash-Out Refinances
  • No Investment Properties
  • Single Family Residences Only (No Multi-Unit Homes)
  • Loan must be under the Conforming Loan Limits
  • No Properties where Adverse conditions are present based on Sellers Disclosure or Inspections
  • No Manufactured Homes
  • No Constructions Loans
  • No Non-Arms Length Transactions
Example Appraisal Waiver Certificate.

Appraisal Waiver Pre-Check

Riverbank Finance LLC can do an appraisal waiver pre-check to see if your property is eligible to refinance with no appraisal required.

We simply need your home address and estimated property value and our software will confirm if you are eligible for an appraisal wavier!

Check Eligibility Now!

Refinancing a VA loan with no appraisal with an IRRRL

Military veterans that currently have a VA loan on their primary residence may be eligible to drop their interest rate with a VA IRRRL (Interest Rate Reduction Loan).

This streamlined refinance loan required limited documentation to allow veterans to take advantage of lower rates and payments. No Income and No Appraisal and only a mortgage credit rating is required.

Get Info on a VA IRRRL

Refinance an FHA loan with No Appraisal with an FHA Streamline Refinance

Similar to the VA IRRRL, homeowners that currently have an FHA mortgage may be able to lower their interest rate with no appraisal with an FHA Streamline Refinance loan.

This loan allows a homeowner to take advantage of lower mortgage rates with limited documentation. They may be able to close quickly with no appraisal, no income documentation and only a mortgage credit rating.

What are the Benefits of Refinancing my Mortgage?

Refinancing you mortgage may be a great financial decision. It never hurts to review your options to see if a mortgage refinance is right for your goals.

You may be able to save thousands of dollars in interest payments or pay off your loan more quickly.

Refinance Benefits may Include:

  • Lowering Your Interest Rate – Dropping your rate may save you thousands in Interest.
  • Paying off your home more quickly – Shorten your mortgage term may help you be debt free quickly.
  • Dropping PMI off your mortgage – If your equity has increased you may be able to save on your monthly payment by dropping PMI.
  • Getting Cash-Out for Home Improvements – Tap in your home’s equity for upgrades, family vacations or to get Cash-in-Hand.
  • Consolidating Debt and Lowering your overall Monthly Payments – Pay off high interest debts by consolidating them into your low rate mortgage.

Talk with a Refinance Expert

Riverbank Loan Officers are experts on refinance loan options. We may be able to save you thousands in interest compared to your current mortgage.

Call us today at 800-555-2098 or request information below.

Request Information Now!

5 Questions to Ask Yourself Before Buying a Home

Posted on May 29, 2019 by - Buying a Home, First Time Home Buyer, Mortgage Tips

How Long Do I Plan to Live in the House?

Before you decide to buy a home you should review your goals and timelines. It is important to know how long you plan to live in your home.

Each timeline will have different goals for financing so plan this up front to save the most money with your mortgage!

Short Term Housing

If you plan on staying in a home for a very short amount of time, under a year for example, you may be better off renting. Closing costs and costs to sell a home may take away any financial benefits of owning.

The Starter Home

If you know you will be moving within 1-3 years you will want to structure your financing to get the lowest closing costs for your mortgage. Ask your loan officer about Lender Paid Closing Costs.

No Plan on Moving Soon

If you plan on living in your home between 3-5 years, getting a balanced mortgage with a low rate and low closing costs will be the best fit.

Buying the Forever Home

If you are buying your “forever home” and plan to stay in your home for at least 5 years, then getting the lowest rate should be a priority. Even if you have more costs up front, the monthly savings from having a lower rate and payment will pay off in the long term.

Do I Plan to Do Home Improvements?

When you buy a home, the first rule is Location, Location, Location. You can make any home into your dream home but you cannot change the location. Sometimes you have to sacrifice some of your needs and wants to get a home in the “Right” location.

This may mean that you need to buy a home and do home improvements after you purchase. If you know the home you are buying will need some work, it is important to budget for these repairs.

Ask yourself these key questions when it comes to home improvements:

  • How do you plan to pay for the home improvements?
  • How quickly will the upgrades need to be completed?
  • Will you save up and pay cash or finance the repairs?
  • Will you do the repairs yourself or hire it out?

If the repairs are significant, you may want to consider a Home Renovation Mortgage when you purchase which allows you to finance in repairs.

Do I Want to Keep Cash on Hand or Make a Large Down Payment

There is an old saying when it comes to money, “Cash is King!” This saying holds true when it comes to owning a home. It is important to have some cash saved up when buying a home.

There are several things to consider when it comes to using your cash when buying a home:

  • Should you keep money in the bank for emergencies or home repairs?
  • Should you use your cash for investments or retirement?
  • Should you make a large down payment to lower your monthly mortgage payment?

These are all important things to consider when budgeting to buy a home. For some, applying a 20% down payment will help them to avoid Private Mortgage Insurance (PMI) which will result in a lower monthly payment.

For others, getting a zero down mortgage or putting down only 3% may allow them to buy the home they want and have money left over for Home Improvements or repairs.

How Quickly Do I want to be Debt Free

When buying a home, it is important to plan for the long term future. You should ask yourself how quickly you want to become debt free by paying off your mortgage.

For some, buying a home is only the start of their adult life and they need to have flexibility to have low monthly mortgage payments. A 30 Year Fixed rate mortgage may be the best fit in this scenario.

For others that are nearing retirement age, going with a shorter term mortgage, like a 15 Year Fixed Rate Mortgage may be the best fit. Typically a shorter term will have a lower interest rate and will help you to pay off your mortgage more quickly.

Home Buyer Advice

There are several things to consider when buying a home which makes it important to work with an experience mortgage professional such as a mortgage broker.

A mortgage broker will help you to review your goals and structure a loan to help you save money. They can do calculations such as a break even analysis to advise if you would be better off with a low closing cost mortgage or a low rate mortgage.

To Speak with a Licensed Michigan Mortgage Broker call Riverbank Finance today at 800-555-2098 or request information below.

Request Information Now!

Why Michigan Mortgage Rates Dropped in 2019

Posted on April 24, 2019 by - First Time Home Buyer, Local Michigan, Mortgage Rates, Mortgage Tips

Surprised about Mortgage Rates

March 2019 was the best month for Michigan Mortgage Rates in a Decade! Rates dropped the sharpest they had in a single month since the mortgage meltdown which led to a recession in the late 2000’s.

This is great for anyone that is buying a home or looking to drop their mortgage rate. Many are wondering why rates dropped and will they go up or down.

Get a Rate Quote Now!

Why did mortgage rates drop in Early 2019?

The slow economy in Europe is a factor resulting in lower mortgage rates. With the effect of Brexit causing uncertainties for business and long term investment plans, Europe’s economy has been suffering.

When major global economies are halted, investors demand more predictable investments like bonds and mortgage backed securities which create lower mortgage rates.

The Federal Reserve Decided to Leave the Federal Fund Target Range Unchanged

The Federal Reserve does not directly set mortgage rates however they do have a major effect on them. The Federal Funds Rate is the rate at which banks can borrow money from Federal Reserve Funds.

Banks use this rate to base interest rates on loans. If banks can borrow money cheaper, they can lend it out in the form of mortgages and other loans at lower interest rates.

The Federal Reserve released its policy statement showing that they do not expect to hike Federal Reserve Rates for the rest of the year due to the slower growth in the economy.

This caused Treasury Yields to Fall which helps mortgage rates. The Treasury Yields dropped to levels not seen for 10 years which could indicate a future recession.

Home Sales Decline and Housing Inventory Increased

The National Association of Realtors (NAR) reported that the seasonally adjusted rate for sales of existing homes dropped 4.9% in March 2019 from the previous month and were also down year over year 4.7%.

NAR also confirmed that home inventory increased from 3.5 to 3.8 months’ worth which indicates slowing home sales.  Although sales appear to be slowing, this may be due to the 3.8% increase in median home sales prices.

Jobs Report Numbers Low

While the real estate market shows strength, job grown has dwindled. The headline nonfarm payrolls may have disappointed some with only 20,000 new jobs.

The average since taking the survey from 1939 is 125,000 new jobs created. This is the worst number in job growth since September 2017 when two major hurricanes hit.

US Trade Deficit Worst in 10 Years

Recent reports show that the U.S. trade deficit jumped to $59.8 billion. This is the largest it’s been in the last ten years. The uncertainty with Chinese trade tariffs have had a negative impact on US manufacturing and exports.

Will Mortgage Rates go Up or Down?

The million dollar question from all people considering a mortgage is, “Will Mortgage Rates go Up or Down?” If this were easily predictable then everyone would not be wondering this.

There are several factors pushing upward on mortgage rates for the long term. Progress in the US / China Trade Negotiations, Brexit decisions postponed, Oil Prices Rising, the US stock market hitting record highs; these all are negative forces on mortgage rates.

See Michigan Mortgage Rates

Mortgage Rate Lock Advice

No one can predict the future with certainty. My advice to my friends, family and clients is to review benefits of locking in a mortgage rate or refinancing right now.

  • If it makes sense do it!
  • Do not wait or you will be late!
  • No one can predict Mortgage Rates!

If your mortgage rate is over 5%, now may be a great opportunity to drop into the 4’s for a Conventional 30 year fixed mortgage or even 3’s for a 15 year home loan.

With upward pressure on mortgage rates, it is a risky gamble to wait to see if they will go lower.  If the numbers make sense and add benefit then take advantage of it immediately!

Request Information Now!

FHA vs Conventional Loans

Posted on March 20, 2019 by - Buying a Home, FHA Mortgage, First Time Home Buyer, Local Michigan, Mortgage Tips

conventional loans vs fha loans

Conventional Loans are home loans that conform to the underwriting guidelines set by the Government Sponsored Entities, Fannie Mae and Freddie Mac.  In the past, conventional loans were only for elite borrowers that had 20% or more for their down payment. Times have since changed opening up great new programs for low to middle income earners and first time homebuyers.

Why are Conventional Loans Better than FHA Loans

Conventional Loans are now an affordable option for those without the highest credit scores. Mortgage Interest Rates are currently in a tighter spread. By this I mean that the best creditor borrowers and the lower score borrowers will have an interest within 1% to 1.5% of each other.

This is helped by programs like Fannie Mae’s HomeReady Loan and Freddie Mac’s HomePossible Loan. These programs limit the loan level price adjustments (LLPAs) which increases the par offering rate. These programs also allow first time homebuyers to buy a home with only 3% down while FHA requires a minimum down payment of 3.5%.

In the past, Private Mortgage Insurance (PMI) rates would also be absurdly high for lower score borrowers seeking Conventional mortgages. With the competition between PMI companies, mortgage insurance rates have dropped significantly in the past few years. This allows Conventional loans to be very competitive with Government Insurance Loans like FHA mortgages.

Related: See our Conventional Mortgage Calculator

FHA Mortgage Insurance Cost May Cost More than Conventional Loans

Conventional loans may be a better option for homebuyers than FHA Mortgages because of the mortgage insurance savings. On Conventional loans, there is typically a monthly PMI fee if a borrower does not put a 20% down payment towards their purchase. FHA has a similar fee plus an up front charge.

Related: See our FHA Mortgage Calculator

FHA Mortgage insurance VS Private Mortgages Insurance

FHA Mortgage InsurancePrivate Mortgage Insurance
Required on all Loans Required on conventional mortgages with less than 20% down
Two Types of mortgage insurance May be dropped once loan to value is under 78%
Cannot be removed if down payment is less than 10%
 What is an FHA Up Front Mortgage Insurance Premium?
May be more expensive Many options for PMI payments
Offers Reduce Premiums for First Time Homebuyer Programs

FHA Loans charge two types of Mortgage Insurance Premiums (MIP). There is Upfront Mortgage Insurance Premiums (UFMIP) which are payable to HUD at close. The UFMIP is calculated as a percentage of the original loan amount. This fee is currently set at 1.75% of the base loan amount. For example, If you borrower $200,000, the FHA UFMIP added to your loan amount is $3,500. This is an extra expense not found on Conventional Loans.

What is an FHA Annual Mortgage Insurance Premium?

The Second type of Mortgage Insurance on FHA Loans is Annual Mortgage Insurance Premiums (MIP). This calculation varies based on loan-to-value and loan term but is as high s .85% of the original loan amount. For example, if you borrowed $200,000 the annual MIP would be $200,000 * .0085 = $1,700 which is split up over 12 months and added to your monthly mortgage payment. In this example, your payment would increase by $141.67 for MIP.

April 2013, FHA made a major change which started the shift away from this loan type. They changed the way annual FHA mortgage insurance fees were charged by making FHA Mortgage Insurance Premiums payable for the life of the loan. In past years, it would drop off under certain circumstances similar to Conventional Loans when your loan was paid under 78% of the home’s value.

Conventional Loans are more Attractive to a Seller than FHA Financing

In many areas of the country, there is a shortage of homes for sale which creates a sellers market. This means that sellers can be more picky when accepting offers from buyers on their homes.

When a buyer is making an offer with FHA financing, a seller may be reluctant to accept due to additional requirements for the home’s conditions compared to Conventional Financing. Having a Conventional Loan Pre-Approval may make the difference from getting your offer accepted or getting rejected by a seller.

Why Would Anyone Still Do FHA Loans over Conventional Loans?

There are certain circumstances where FHA finance may be a better option than a Conventional Loan.

FHA Loans with Down Payment Assistance

Many Mortgage Down Payment Assistance Programs (DPA) work only in conjunction with FHA financing. If a borrower does not significant funds available or down payment, DPA programs may help the buy a home.

FHA Loans Allow for Lower Credit Scores

Conventional Loans have minimum credit score requirement of 620. If a borrower has a credit score lower than this, FHA financing may be the only option. Currently FHA allows for credit as low as a 530 with a 10% down payment or as low as 580 with only a 3.5% down payment. Many borrowers with a credit score lower credit scores may have no problems qualifying for FHA financing when Conventional loans are not an option.

FHA Loans Have Shorter Wait Periods Than Conventional Loans

FHA loans have shorter wait periods for major life events such as bankruptcy or foreclosure.

  • FHA loans only require a 2 year wait period from Chapter 7 Bankruptcy while Conventional requires 4 years.
  • FHA requires a 3 year wait period for foreclosures while Conventional Loans require 7 Years.
  • These wait periods may allow a borrower to buy a home with FHA financing while conventional is not an option.

FHA Loans allow for Higher Debt To Income Ratios than Conventional Loans

A borrower may be better off with an FHA loan over conventional financing if they have a high Debt To Income Ratio.

  • Conventional Loans typically require a borrower to have a Debt-to-Income (DTI) of 45% or less to qualify with a maximum DTI of 50%.
  • FHA is more flexible with higher debts allowing a maximum of 56.9%. Borrowers with higher debts may only qualify for FHA Loans.

FHA Streamline Refinance

If a borrower already has an FHA Loan but does not have a significant amount of equity in their home, they may qualify for a rate reduction through an FHA Streamline Refinance. This loan type may allow them to drop their rate and payments without an appraisal or documenting income and with little to no costs. This is a program unique to FHA financing and can help a borrower that purchased their home when their credit scores were lower but have since improved.

Summary of Why Conventional Loans are Better Than FHA Loans

With the current guidelines set by FHA, Fannie Mae and Freddie Mac, Conventional Loans may be a better fit for buyers than FHA loans. Conventional loans offer lower down payments of only 3% for first time homebuyers while FHA loans require 3.5% down. Mortgage insurance may be significantly cheaper on Conventional loans versus FHA loans. Lastly, submitting an offer with Conventional Financing may be more attractive to sellers over an FHA Pre-Approval.

To get more information on what loan type maybe the best fit for your situation, call a licensed loan officer today at 800-555-2098 or request information below.

Request Information Now!

Top 3 Myths About Using a Mortgage Broker

Posted on February 23, 2019 by - First Time Home Buyer, Local Michigan, Mortgage Tips

Mortgage Broker Myth #1

One of the biggest myths of using a Mortgage Broker is that they do not have control of the underwriting process. Many retail lenders and banks claim this because they have employees that underwrite the file whereas a mortgage broker works directly with the end investor to underwrite the file.

Retailers claim they can go directly to the underwriter and have them clear any unusual conditions however the retail underwriters are typically more cautious because they have to underwrite to the end investor’s standards and sell the mortgage to them after closing. If they make a mistake, the end investor may refuse to purchase the loan.

Local Mortgage Brokers have a choice on which bank or end investor they want to send their loans. If one does a poor job by not clearing the loan quickly, the mortgage broker may choose to no longer do business with them. This forces underwriters to remain accountable and nimble on clearing conditions.

If a retail loan officer at a bank or direct lender is having difficulties clearing the conditions on their loan, they have no other options because they are held captive to their once underwriter which is the only option they have.

Mortgage Broker Myth #2

The second myth about using a mortgage broker is that they take longer than a retail lender or a bank. According to the January 2019 Ellie Mae Mortgage Origination Survey of many major banks and lenders, the average time to close a mortgage is 45 days!

Using a mortgage broker, the average closing time is 21 days which is less than half of the retails and bank lenders. Taking over 30 days to close a loan with a mortgage broker would be uncommon or the result of 3rd party issue.

Mortgage brokers operate more quickly because all they do is mortgage loans. While banks may have other services such as auto loans, credit cards and checking accounts, these are distractions from closing mortgages quickly!

Mortgage Broker Myth #3

The third mortgage broker myth is that mortgage brokers cost more than banks and retail lenders. This could not be further from the truth!

For nearly all loans that mortgage brokers close, there are zero origination fees. This means no underwriting fee, no origination fee and no processing fees. For many banks and lenders these fees could be thousands of dollars that are charged to the clients and add to the cost of buying a home.

Mortgage brokers have access to the lowest rates in the mortgage industry. As a mortgage broker, they receive wholesale rates from the end investors. Generally speaking, mortgage brokers have low overhead and thinner margins which allows them to pass huge savings on to their clients. Lower costs and overhead result in lower than average rates.

Why to Use a Mortgage Broker

With mortgage rates on the rise, consumers are becoming more aware of high rates and fees that are charged by large retail lenders and banks. By simply getting a 2nd quote from a local mortgage broker, a client could save thousands of dollars on the up front costs of their mortgage and tens of thousands of dollars over the life of their loan by getting a lower interest rate.

Mortgage Brokers: Low Rates, No Fees, Quick Closings.

Mortgage brokers are mortgage experts that specialize only in home loans. They work directly with the end investors to close loans quickly and efficiently and pass on low rates and, for most loans, zero lender fees!

To speak with a mortgage broker, give us a call today at 800-555-2098 or request information below!

Request Information Now!