Is an FHA Loan Right for Me?

FHA loan

The standard mortgage loan down payment of 20% can be a huge sum of money to many prospective homeowners. If this big number is the main reason you have put off buying a home, consider applying for an FHA loan. An FHA loan will help you finance the purchase of your home without having to put down a huge down payment.


FHA loans prevent would-be home owners from getting priced out of the real estate market.

An FHA loan is backed by the Federal Housing Administration, an agency of the U.S. government. The FHA does not lend you money; instead, they insure the loan used to purchase your home. In the event that you are unable to make payments on your mortgage, the FHA will step in to pay your lender. This makes it less risky for lenders to grant mortgages to buyers with lower down payments or poor credit scores. As long as your credit score is 580 or higher, you can qualify for an FHA loan with a 3.5% down payment. If your credit score is between 500 and 579, your FHA loan will require a 10% down payment.

What You Need to Know (Before You Apply)

fha loan

1. You need a consistent income.

While FHA loans don’t have a set minimum or maximum income requirement, you must prove that you earn a steady income. Pay stubs or yearly tax returns can help you prove that you are a reliable earner. Bonus points if you’ve worked in the same field or for the same employer for a couple of years.

2. Heavy debt can hurt your approval chances.

The FHA is unlikely to approve your application if you already have a lot of existing debt—like auto loan(s), credit card debt, and student or personal loans. An FHA loan officer will analyze your income to determine what percent of your monthly income goes to paying down your debts. As a general rule of thumb, your mortgage shouldn’t be more than 31% of your income before taxes. Additionally, your combined debts should not be more than 41% of your income.


An FHA loan officer won’t approve you for a mortgage if you’ll be paying half your salary toward debts.

3. Lenders favor borrowers with credit scores above the 580 minimum.

While 580 is the minimum credit score the FHA requires to insure your loan with a 3.5% down payment, some of the lenders the FHA works with do have higher credit score requirements. For most lenders, you will have a better chance with a credit score of at least 640.  If your credit score isn’t quite there yet, it can be worth it to take the time to improve your score before applying for an FHA loan.

4. Be realistic about your buying power.

There are limits on how much money you can borrow with an FHA loan. These limits are based on real estate prices in the area(s) where you want to buy a home. If you can afford to buy a huge house with a swimming pool, you likely don’t need an FHA loan to begin with. Keep in mind that FHA loans aren’t just for single-family homes. A smart investment move is to purchase a multi-family housing property with up to four units. Rental income can pay for your monthly mortgage payment (and sometimes more). FHA requirement for purchasing multi-family homes is that you must live in the property for at least a year.

5. You will need mortgage insurance.


Mortgage insurance is an insurance policy for lenders in case the borrower defaults on the loan.

If you have an FHA loan, you must have mortgage insurance. The up front premium for mortgage insurance will be part of your closing costs and is approximately 1.75% of the total loan amount. In addition to the 1.75% upfront cost, you will also have a monthly mortgage insurance premium. This will typically read as mortgage insurance premium (MIP) on your FHA loan statements. Mortgage insurance costs between 0.5% and 1% of your loan value each year. This calculates to ~ $120 a month for a home loan of $195,000.

If you are trying to decide if an FHA loan is right for you, sit down and look at the numbers to make sure you can afford a mortgage payment, mortgage insurance, the down payment, and closing costs. If you think your budget is ready for homeownership, an FHA loan can be a great way to make your dreams a reality!

Advertisements

Can I be Approved for a NJ Mortgage with a Bad Credit Score?

NJ mortgage

A lot of people with a bad credit score assume it is impossible to become a homeowner. A low credit score can definitely make it harder to get a new credit card or any type of loan, including (and especially) a mortgage loan. If the one thing standing between you and home ownership is your credit score, don’t give up hope. It is possible to get approval for a NJ mortgage with a low credit score.

What is considered a “bad” credit score to mortgage lenders?

Different lenders have different criteria for loan applicants. The lower your score, the more likely it is that potential lenders will see you as a risk. If your score is somewhere in the middle—between 620 and 740 (approximately)—there is a little more wiggle room. While you will likely face higher interest rates and be restricted in how much you can borrow, you should still be able to secure a mortgage loan without much issue. Generally, if your score is under 620, you will not be able to get a loan from a traditional lender. But that doesn’t mean you have no options for getting a loan; it just means you will have to go through less traditional lenders.

Private Lenders

One option for borrowers with low credit scores is to go with a private lender. Mortgages through private lenders often come with higher interest rates and more substantial minimum down payments for borrowers with bad credit. You also may have to do a little more work with a private lender, like providing additional paperwork that is typically not required with a traditional lender. It’s important to do your due diligence when going through a private lender. Shorter payback periods and higher interest rates can make it difficult to make your monthly mortgage payments. Make sure you will be able to make timely payments in full for the duration of the loan.

FHA Loans

Another possibility is a Federal Housing Administration (FHA) loan. If your credit score is at least 580, you can qualify for an FHA mortgage with 3.5% down. With a score between 500 and 580, you will need to put at least 10% down. The cutoff for credit scores with an FHA loan is 500. Downsides to an FHA loan include: high interest rates and a mortgage insurance premium of 1.75% as well as monthly insurance premiums. If you pay less than 10% of the loan for your down payment, you will have to pay these monthly insurance premiums throughout the life of the loan.

Mortgage Tips for Low Credit Score Borrowers

Sometimes it’s possible to make up for a bad credit score in other ways. You can offset the risk of the loan by offering to pay a bigger down payment. While first-time home buyers typically put down 6% or less, making a 20% or more down payment could encourage lenders to approve your application despite a poor credit score. Plus, the more money you put down, the lower your monthly payments will be.

Another option is to enlist the support of a co-signer. If you have a close friend or family member with a great credit score, they could help you secure a mortgage loan. This is not a commitment to take lightly, though. While the mortgage is in your name, the co-signer will be equally responsible for any payments. This means if you miss a payment, their credit will be negatively impacted. Working with a co-signer requires a lot of communication and trust.

#1 Way to Own a Home with Bad Credit

If your goal is to buy a property but your credit score is poor, the best thing you can do is take the time to rehab your credit score. The higher your credit score, the better chance you’ll have of working with a traditional lender. Working with a traditional lender means your down payment, interest rate and monthly payments will be lower. Regardless of your situation, Veitengruber Law can help you determine which path to home ownership is best for you.

Hiring the Right Professionals for Your NJ Real Estate Purchase

When it comes time to purchase a home, whether you’re a first-time home buyer or an experienced home buyer, you want to put together a superior professional team. In doing so, you will give yourself the best chance at landing the home of your dreams within your price range and ideally, within your desired timeframe.

Living in the technology era makes it extraordinarily easy to access information regarding almost any topic – and this includes the real estate market. While any tech savvy home buyer can access a home’s stats, asking price and any other information associated with the listing, does this mean that you don’t need to hire a realtor? And while were at it, who else do you need to hire help you bring this thing “home?”

Real estate professional/agent

While it’s true that you can easily access listing information about virtually any property that is listed on the MLS (Multiple Listing Service), it is imperative that you take the time to research, interview and select the right real estate agent.

Real estate agents have so much more to offer you than what you can find with the click of your computer mouse, namely: experience. The right real estate agent for you will become your advocate and will help you get the best deal possible. Experienced real estate professionals can also make the home buying process more effective by helping you narrow down specifically what you are looking for in a home.

While it is possible for you to go it on your own without a real estate agent, it is not advisable unless you have solid experience in the real estate field yourself.

Lending agent/mortgage company

Naturally, you’re likely going to need to mortgage this significant purchase, and choosing the right mortgage company can make a big difference in your overall satisfaction with the home buying process.

Look for a lender who is highly reputable in your area and has solid reviews from customers as well as a good BBB rating. The ideal lender will present you with a variety of different mortgage programs and down payment options. They should be able to tell you rather quickly how much house you can afford. Quick response time and a history of in-house processing, underwriting and funding are also important factors that many home buyers find invaluable.

Real estate attorney

The process of buying a home is a very serious transaction with a plethora of details and minutiae. A financial decision as large as buying real property has many legal issues that only an experienced New Jersey real estate attorney is qualified to answer properly. No real estate agent should be giving you legal advice about your home purchase. Everything from translating legalese within the purchase contract to tax obligations and any existing or surprise property liens is best handled by your lawyer.

Working with a real estate attorney is especially crucial if you are purchasing a home via NJ short sale or Sheriff’s Sale (foreclosure). The added legal implications surrounding these types of home buying cement your need for a New Jersey real estate attorney who also specializes in foreclosure defense.

Title agent/company

Most experienced real estate attorneys can also perform title searches, but title companies have one job and one job only: making sure the home that you purchase has a clear title search. You will probably still want to purchase title insurance, as there is no guarantee that long-lost liens on the property will pop up in the distant future, but this is a decision that your real estate attorney can help you make along with your title agent.

Home inspector

Soon after you sign a purchase contract, you will be given the opportunity to do a professional home inspection on the property before the contract becomes official. In order to avoid making a significant financial blunder in purchasing a house that is wrought with problems, it is essential that you hire a home inspection company or professional home inspector who has substantial experience under his belt. Your home inspector will be able to discover any existing structural problems with the home that either weren’t disclosed by the seller or weren’t known to the seller. You will then be able to work with your real estate agent to either negotiate to have repairs made (at the seller’s expense), or, cancel the transaction if a satisfactory compromise cannot be made.

 

 

Do You Understand Your Mortgage’s Fine Print?

Now that the housing/mortgage crisis has begun to level out in most parts of the country, it has once again become a buyer’s market, and this time in a much more reasonable manner. Interest rates are good, but not unbelievably good like they were leading up to the 2007 crisis. As we all know by now: if something seems too good to be true, it probably is.

Just because we’re looking at the US Financial Crisis (2007-2008) in the rear view mirror doesn’t mean that getting a mortgage loan today comes without risks, though. In fact, there is a lot to be learned from the mistakes made a decade ago.

In order to ensure that you aren’t getting yourself into something you can’t handle or something that will change over time (and not in your favor) – you simply MUST have a complete and solid understanding of everything contained in your mortgage agreement.

To most people, this probably sounds like common sense. But have you ever looked at a real, live mortgage agreement? They are very lengthy with a lot of industry jargon that can quickly spin you into a confused puddle on the floor.

Your best bet is to find a New Jersey lawyer with real estate knowledge. Make sure you trust him and his team implicitly – in all likelihood a paralegal may also work with you on real estate matters, so be sure to meet everyone in the office who will be helping you understand your documents.

Questions to have ready for your attorney and/or paralegal include:

  • Is my rate variable or fixed? If the answer is variable, find out the lowest fixed rate that you’ll be able to lock in your loan.
  • Will there be penalties if I have to break my mortgage contract?
  • Am I required to pay mortgage insurance? If so, find out why. You may be able to work with a different lender who will not require mortgage insurance. If mortgage insurance is non-negotiable, be sure to ask how long you’ll be paying it, because it can often be a significant sum.
  • How long does my mortgage loan last? Will different terms lower my monthly payment?
  • What fees am I required to pay up front and are there any fees that were tossed into the total loan amount?
  • Do I have a balloon payment clause?
  • What are mortgage “points?”
  • Is a down payment required?
  • What is my monthly payment?
  • What is my credit score? We left this question until the end for a reason. We wanted to leave you with it on your mind. Finding out your credit score should be one of the first things you do even before you begin applying for mortgage pre-approval.

Your credit score will have a significant impact on the interest rate you will be offered by lenders. If your score is less than desirable, or even “fair”, talk to your NJ real estate attorney and paralegal about waiting to buy a home until you can boost your score into the “good” or “excellent” range. Work with your trusted legal team to raise your credit score. They will also be able to guide you in determining the best time to jump into the real estate market so that you qualify for the best loan options. This will save you a lot of money throughout the length of your mortgage.

 

 

Images: “Chocolates 1” and “Chocolates 2” by Windell Oskay – licensed under CC 2.0

Divorce and Your Mortgage: The Dirty Little Secret

15079892275_63d6372c46_z

No one goes into a marriage hoping to get divorced one day. Unfortunately, many married couples just don’t make it ’til death does them part’ – rather, they end up parting ways, and all of their assets have to get divorced, too.

When any couple decides to divorce, part of the process involves negotiating what is called a Property Settlement Agreement – often referred to simply as the PSA. This agreement can be set up by the divorcing parties themselves if they agree on everything to be divided. Parties who do not see eye to eye draw up their PSA through their respective divorce attorneys. Regardless of how it was generated, all Property Settlement Agreements must be approved by the court in order to be considered enforceable.

During the course of a divorce, emotions typically run high, and for many couples, getting through the negotiations of “who gets what” can be trying. Thus, many people rush through the PSA negotiations, signing off on the agreement without fully understanding what it entails.

There are many portions of the Property Settlement Agreement that will be cut and dry, easy to understand, and without complications. The PSA essentially lays out what property (both marital and separate) shall be distributed to which party. To be clear: marital property includes anything that was purchased by either spouse during the course of the marriage. These assets may have been bought by one spouse or both spouses together. Separate property would have been purchased by one of the parties prior to getting married.

One of the main items for consideration in a divorce is the marital home. If the home is not sold and its equity divided, its ownership will be granted to one party or the other. The spouse receiving the house then takes over the mortgage payments on his or her own, and, according to the PSA, is the sole owner of the home. This is one portion of the Property Settlement Agreement that is fraught with misunderstanding.

Unfortunately, your mortgage company was not privy to, nor does it care one iota about, your divorce agreement. Lenders only care about who was originally approved and signed for the loan. With married couples, this often means that the lender considered the income of both parties when approving them for a home loan. What that also means, is that both parties will remain liable for the loan – whether they remain married or not.

Subsequent to a divorce, the party who was granted ownership of the marital home may wish to refinance the mortgage. Upon making inquiries about doing so, s/he will then realize that both parties’ names are still on the mortgage, and that making any changes to the loan will in fact require the cooperation of both people. As you can imagine, this discovery is quite distressing to divorced couples who believed they had officially ‘moved on’ from the marriage.

Many people who find themselves in this position want to simply remove their ex-spouse’s name from the mortgage, however, lenders are not keen on this idea. Although it seemed you were granted sole possession of the home in your divorce agreement, your lender is not controlled by divorce court. When they granted you the loan, they took both of your incomes and credit histories into account in order to be sure that the loan would be repaid. From their point of view, it wouldn’t be prudent to simply excuse one of you from the terms that you agreed to when you first bought your home.

Although you may have thrown your hands in the air wondering what you can possibly do to finally and completely separate yourself from your former spouse – there are solutions to this problem. Although they are not simple, there are ways around this ‘dirty little secret’ that everyone failed to mention at the time of your PSA negotiation.

In order to essentially ‘remove’ your ex-spouse’s name from the mortgage, you will have to completely refinance your loan. This will result in a completely new mortgage with only your name on it. In order to refinance in this manner, you’ll have to be able to qualify for the loan on your own – so your income, credit score and financial history will all be reviewed by the mortgage company.

If you’ve found yourself in a similar situation and aren’t sure if you’d be approved to assume the mortgage on your own, work with an experienced attorney who knows mortgage refinance like the back of his hand. To find out if you would qualify for a mortgage refinance, or if you have other real estate questions after your divorce, send Veitengruber Law a message today. We offer free initial consultations. Please utilize all of the free information available to you through our law blog, and follow us on Facebook for regular legal tips and financial advice.

 Image credit: Derek Finch

Home Ownership & Student Loan Debt: How They’re Connected

2489882458_863681ae7e_z

Applying for a mortgage loan is akin to putting all of your financial cards on the table. Because the amount being borrowed is so high (in most cases), lenders will scrutinize all of your money decisions with a fine tooth comb. With that being said, it is best to wait to apply for a mortgage loan until such a time when your other financial obligations are low and your credit score is good.

However, everyone knows that life doesn’t always go as planned, and many millions of Americans are finding themselves paying off student loan debt years, sometimes decades after they have finished college. Many of these people may have in fact defaulted on their student loans, which can result in a legal judgment from the court.

Understandably, lenders are very wary of giving a loan to someone who has already defaulted on a loan in the past. They’d rather not take the risk of losing big-time money, and may pass you over for the next borrower ‘standing in line.’

So, what is a person to do if they are working hard to make good on an old student loan judgment? Must they wait until their loan is 100% paid off to pursue their dream of owning a home?

The real answer to this question is “maybe.” While that answer may not seem very encouraging, it’s better than an outright “no.” Lenders are going to look at more than just an outstanding student loan judgment (even if you are currently making steady payments on that loan via wage garnishment).

Another big factor that mortgage lenders are going to take into account is your overall credit score and your credit report. If you haven’t taken a look at your credit report recently, take advantage of the free report available to you at annualcreditreport.com. If you want to know your actual score, you will simply have to pay an extra $10.

If your score is at least fair, (above 630), that is proof that your student loan has not put a permanent albatross on your credit score, and moving ahead with applying for a mortgage loan is definitely within the scope of reasonable actions for you at this time.

If, on the other hand, your credit score is less than 630, you probably won’t get approved for a mortgage loan immediately, but you do have several options to help yourself move toward that goal.

First, make contact with your student loan lender(s). By reaching out to them personally, you’ll likely have a better chance of getting out of student loan debt much faster than you will on your current payment schedule. Many lenders have a rehabilitation program that helps debtors get back on track. If your lender is not amenable to speaking with you or negotiating with you, contact a New Jersey attorney who has experience dealing with both student loan debt and real estate. The right NJ attorney can negotiate your outstanding debts down to a much more manageable level – so much so that the fees associated with hiring an attorney will seem like a drop in the bucket.

Another thing you can do is apply for three secured credit cards and begin using them as soon as you receive them in the mail. Pay off the balances consistently every month for the next six months. This action alone will boost your credit score and help put you in position to get that mortgage loan, and get into the home of your dreams.

To get additional information and help negotiating your student loan debt, contact our office now for a free consultation. (732) 852-7295

Image credit: Chie