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FHA Home Loan Pitfalls

FHA Home Loan Pitfalls

FHA Home Loan Pitfalls

FHA loans are quite popular simply because it makes it easy for most people to purchase a home. Home ownership is a reality for many people, but these types of loans are not for everyone. Ensure that you fit the right type of profile and that you understand the disadvantages of getting a FHA loan before you fall in love with getting one.

Highlights of a FHA loan

Even if you have limited funds for a down payment and have damaged credit, you can qualify to get a home loan with a decent interest rate.

Down Payments: a FHA loan will let you put as little as 3.5% down. This will allow you to purchase a more expensive home with less money, and you are able to reserve some funds for improvement projects or other types of goals.

Credit issues:Those who have a troubled credit history will often have a hard time of getting approved with a conventional lender. FHA backing will allow you to be approved with a low credit score.

Home Improvement: FHA 203k loans will let you fund home improvement projects and buy a house at the same time. Combined with other types of features, they also make it easy and inexpensive.

Drawbacks of using a FHA Loan

When you are looking to purchase a home, it is wise that you evaluate whether or not getting a FHA loan will help you. Look at the bigger picture and then consider all the financial goals.

Low Down Payment: Low down payments can be a red flag. Putting 3.5% down could indicate you are financially stable and a home loan may be a higher risk.

It is worth waiting until you can save up for a larger down payment or looking at a less expensive home? Remember, the more that you borrow, the more interest that you will pay, which will make your house more expensive.

Upfront Insurance: If you put less 20% down, it means that you will be required to pay for mortgage insurance, with FHA loans having 2 types of insurance that you will need to pay for the whole life of the loan.

There will also be an upfront charge of 1.75% and most borrowers tend to wrap this particular fee into the balance of the loan. Remember, the more that you borrow, the more interest that you will pay. You will pay more than 1.75% unless you write a check at closing. A larger loan will also mean that you will have a larger monthly payment.

Ongoing Insurance: You will also have to pay monthly mortgage insurance. Ongoing insurance premiums are between 0.80 and 1.05% of the loan balance, even though it can go as low as 0.45% if you have a 15 year FHA loan. This extra cost means that you will end up paying additional every month. Whereas, private mortgage insurance may be cancelled once you have over 20% equity within your home. However, FHA insurance is unable to be canceled unless loans were obtained prior to June of 2013. Basically, you will have to refinance or pay the loan off to eliminate that cost.

Loan Choice: You will have limited choices when getting a FHA loan. For many borrowers, there is a 15 year or 30 year fixed loan which is great, so there isn’t a problem. But, there are situations when an interest only mortgage or adjustable loan is much better. Don’t just use them to lower your payment, make sure you have a bigger plan.

Property Limitations: Getting a FHA loan approved means that the property meets certain standards. For instance, basic safety and health requirements are met. If you are looking for a fixer upper, a good bargain, or a foreclosure, the FHA loan won’t work. For the properties that are move in ready, a FHA loan will work. But if you are buying a condo it could be challenging. If there aren’t enough units in the building that are owner occupied or there are other issues, a FHA loan may not work.

Qualifying: FHA loans may not always get approved. You will still need a minimum credit score, and need documents that state you have plenty of income to repay the loan. For qualifying for the lowest possible downpayment, you’re going to need a 580 or higher on your FICO score. However, you may get approval with a score under 580 if you can provide a higher down payment.

Seller Hesitation: There are some situations that FHA loans could be a disadvantage when you are buying a home. Sellers want to know about their potential buyers, and a FHA loan doesn’t say strength. What is more is that the seller may fear that the extra requirements are going to slow down the deal. If you are purchasing in a hot market, then try a different financing form.

Alternative Loan Sources

FHA loans aren’t the only way to get the house you need.  Banks will work with people with good credit, hard money lenders work with fix & flip investors and home buyers with challenged credit, and military personnel are many times able to secure VA loans.  Choosing the right solution for your situation helps ensure that you get the home you need.

Bank Loans

A standard home loan that isn’t backed by FHA may solve most of the issues above. Even if you think you won’t be approved, it is worth trying for a conventional loan so that you can see what is out there. A conventional loan will let you have more flexibility, potentially purchasing a home with a 5%-10% down payment.

Hard Money Home Loans

If an FHA loan isn’t right for you; a Hard Money Loan might be the best way to get the house you need.  Hard money lenders can loan to borrowers that have bad credit, no credit, and a wide variety of other credit challenges which prevent them from getting conventional loans or FHA loans.  In fact with hard money lending you can qualify for a zero money down home loan with cross collateral. Read more about: How to quality for a hard money loan.

Military VA Loans

If you’re a member of the armed forces you might be eligible for a VA Loan for your home.  This is a great opportunity provides to veterans to purchase houses through a government funded service.  Interest rates are low and many times they work with challenged credit situations. Click here: For more information on VA Loans.

 Phoenix Valley Hard Money Lender

If you are looking for a hard money lender in the Phoenix Valley, Brad Loans is your source for the loan you need.  We can help you purchase a home to live in, or we can help you fund a real estate investment opportunity such as fix and flip properties.  We work with people with bad credit, no credit, and can overcome many of the roadblocks that standard FHA loans and traditional bank loans have.  For more information about how Brad Loans can help you get the money you need please call us at 480-948-0880 or fill out our hard money loan application.

What Is A Bridge Loan?

What Is A Bridge Loan

If your Googling “What Is A Bridge Loan“, this post should help clarify. Here Brad Loans by eMortgage Inc explains what a bridge loan is, how it works and what it is used for.

What is a bridge loan?

A bridge loan is a temporary loan that will bridge the gape between sales price of a new home and your new mortgage, if the old home hasn’t sold yet.

The bridge loan is secured to the existing home. The funds are then used as a down payment on the new home.

A bridge loan happens to be quite popular within a certain type of real estate market. Whether or not that it is a good option will depend on various factors. The reason that a buyer will take out a bridge loan is because they want to buy another place before they sell their existing home. That may sound great, but a bridge loan does have risks.

For instance, whenever a home buyer is purchasing another home before selling their home, there are 2 ways to find the down payment for the new home which is financing through a home equity loan or a bridge loan.

It is best to wait before buying a home and selling your home first, but most think its best to locate their move in home first.

If you are certain that your existing property will sell, then it will remove fears about what happens if it doesn’t. You may want to talk to an advisor before you get a bridge loan. The main advantage of a bridge loan is to avoid a bad offer and make the move up offer more attractive to a seller.

Normally, a home equity loan is much less expensive, but a bridge loan has more benefits for certain borrowers. Additionally, most lenders will not lend a home equity loan if the home is on the market. Smart borrowers will compare the benefits between the 2 types of loans and find which one is better for their situation and plan ahead before making an offer on another home.

A big benefit for bridge loans is that it allows you to purchase a new home without worrying about selling right away.

Is the balance off? The account balance that is. Below is how much money that you should keep within your savings and checking accounts.

Get it right! In the seller market, most sellers won’t accept a contingent offer. If you are selling a home, that may mean that you can’t buy a home without contingency.

How does a bridge loan work?

Most lenders will not have set debt to income ratios or FICO minimums guidelines. Funding is actually done with an underwriting approach. This requires guidelines in long term financing that is obtained for the new home.

There are some lenders that will make a conforming loan to exclude bridge loan payments for qualifying purposes. This means that you are qualified to buy the new home by adding your existing loan payment onto the new mortgage payment. The reasons that you may be qualified on 2 payments is because:

  • For a short time, you will own 2 homes.
  • Many buyers have an existing mortgage on old home.
  • Buyer is likely to close new home purchase before selling old home.

If the new mortgage is a conforming loan, then lenders will have a bit more ways to be able to accept a much higher debt to income ratio by being able to run it through automated underwriting programs.  If the new loan is a jumbo loan, then many lenders will restrict it to a 50% debt to income ratio.

Average fee for a bridge loan

Rates will actually vary between lenders, but below is an average estimate for a bridge loan in California. The interest rate will fluctuate, but for this instance, we will use 8.5%. These types of bridge loans will not have payments for 4 months, but interest will build up and be due whenever the loan has been paid based on the sale of the old property. Below are sample fees:

  • Drawing/wire/courier fee: $75
  • Recording fee: $65
  • Notary fee: $40
  • Title policy fee: $450 or more
  • Escrow fee: $450
  • Appraisal fee: $475
  • Administration fee: $850

Additionally, there will be a loan origination fee for the bridge loan that is based on the loan amount. Each point will be equal to 1%. Below are the average fees and they will vary.

  • $150,000 – $250,000 = 1 point
  • $100,000 – $150,000 = 0.75 point
  • $25,000 – $100,000 = 0.50 point

Home Purchasing Benefits of Bridge loans

  • If there is a contingent offer to purchase, the seller has a Notice to Perform, then the purchaser may then remove any contingency and move forward with the purchase.
  • The buyer can put their home on the market immediately and buy without restrictions.
  • A bridge loan may not require a monthly payment for several months.

Home Purchasing Disadvantages of Bridge Loans

  • Buyers are often qualified by a lender to own 2 homes and most may not meet this requirement.
  • Making 2 mortgage payments plus interest on a bridge loan may cause stress
  • Bridge loans will cost much more than a home equity loan.

Bridge Loans In Arizona

If you are looking for bridge loans in Arizona, Brad Loans by eMortgage can help. We offer bridge loans, hard money loans and fix and flip loans in Phoenix, Arizona and the sourounding cities.

How To Get A Hard Money Loan

How To Get A Hard Money Loan

How To Get A Hard Money Loan

If you’re searching “How To Get A Hard Money Loan” you’re probably looking to finance a real estate investment project.  There are a number of ways to get funding such as private loans, conventional loans, and hard money loans. In Arizona  each of these options carry their own regulations, guidelines, and are all different.  The application process for a hard money loan vs. a conventional loan from a bank is much different, for example.

Conventional Loan Drawbacks

If this is your first real estate investment or you are a first time borrower, you may think that bank financing is the only way that people get the funding they need.  Conventional bank loans can be very slow and present a number of complications.

Pre-approval Process – Conventional bank loan applications start with a pre-approval process which is followed by requests for virtually every imaginable financial document.  They will typically request copies of your tax returns, bank statements, credit card statements, and will want to know where your down payment is coming from.  If you have money gifted to you or another investor involved in the project they will expect notarized documents attesting to the source of your down payment.

Bank Property Appraisals – Another standard practice of conventional loans is an inspection and appraisal of the property by an agent hired by the bank.  In the case of fix and flip investments banks are typically hesitant to loan based on what a property will be worth after renovations, until the renovations are done.

Lengthy Approval Process – After you have jumped the documentation and appraisal hurdles it can still a month or more until they give you the go ahead on closing the deal on the property.  This means if you have identified a prime home or investment opportunity someone else may be able to get the deal done faster and take the opportunity right out from under you.  This can be an incredibly frustrating experience for investors or potential home buyers.

Restrictive Credit Limitations – Conventional bank loans have much different standards and will not offer financing to people who have bad credit, or no credit.  If you are just starting out and don’t have any credit history, or you have some history that meant bad credit you will most likely be denied a conventional loan.

Hard Money Loan Benefits

Clearly there are limitations to convention loans offered by banks, especially for fix and flip opportunities.  They take longer and are limited by bank conducted property appraisals. Hard money loans offer huge advantages for investors and home buyers.

Much Faster Application Process – The application process requires less documentation and is conducted much more quickly.  The borrower’s financial history will be looked at but more importantly if the borrower is able to produce a down payment and the project’s merits.  Many loan applications can be approved and funded in as little as 7-10 days!  Compared to the month or more that conventional loans you will have a much greater chance of getting the property secured for your real estate investment project, or the home of your dreams.

Greater Fix & Flip Flexibility – Hard money lenders evaluate the feasibility of project to turn a profit based on what it will generate during the renovations or upon completion of the project when it is sold.  The condition of the property is taken into consideration but hard money lenders are not as concerned with the present value of the property as they understand that an integral element of the process is to improvement of the property.   A factor that hard money lenders value is, how quickly a real estate investment will make them back their investment, plus the interest on the loan.  Read more about: Fix And Flip Loans

Funding For Bad Credit – Whether you’ve just started out and don’t have any established credit history or if you have had problems with your credit, hard money lenders have much more flexibility to who they make loans to.  This is a major advantage for a lot of consumers that have unavoidable credit challenges but still want to purchase a home, or want to get involved with real estate investing.

How To Get A Hard Money Loan With Bad Credit

Conventional loans are virtually impossible to get with bad credit, or no credit.  Hard money lenders look more at your ability to pay back the loan and the overall merit of the real estate purchase.  With the right down payment or collateral property people will bad credit are able to purchase the properties they want to live in, or they would like to invest in.  A major advantage of hard money lending is that homebuyers or real estate investors can get funding despite credit challenges.

It’s easy to get a hard money loan and you start by simply filling out a hard money loan application.  Less financial documentation and time is needed to find out if you quality for the loan you need.

How To Get A Hard Money Loan in the Phoenix Valley

If you live in the Phoenix Valley or want to invest in the real estate market in the area Brad Loans by eMortgage is your source for hard money lending.  Our team makes it easy to apply and does our best to get everyone approved for the properties they want to purchase.  We offer financing to a lot of people when banks cannot, or will not offer financing.

To get started simply click: Hard Money Loan Application

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