Not every homebuyer will be able to bring the optimal amount of money down to a closing transaction or have ideal credit history, but they can be aided in their purchase through a loan from the FHA. The FHA, however, has strict guidelines regarding any property for which they will approve a loan. In order to provide greater opportunities for these homebuyers, many developers and lenders have taken the extra steps to ensure that more properties are compliant with these FHA guidelines.

Obtaining FHA approval can actually be one of the easiest and most painless processes to be found when dealing with the federal government. All the agency requires is a set of documents that help the FHA see that a property is within their standards for lending. The FHA uses a simple checklist to determine whether a property is an approvable risk to lend a prospective buyer the money for purchase. In the case of a condo, the FHA may examine the stewardship of the building by the condo association—it is likely that if a building is not meeting FHA standards that the association may be able to take steps that bring it into compliance. In other cases, a mortgage officer may be able to directly help the buyer or the association to take care of the outlying factors that are preventing FHA approval. Any person involved in a home-buying transaction, including the borrower, can take responsibility for making a property FHA approvable.

FHA-licensed appraisers are another important facet of the approval process. When an FHA loan is applied for, these appraisers go to work, and they tend to be more experienced and better-trained than private appraisers. As such, they do two important things for homebuyers and owners. Firstly, they provide a thorough examination of the property and its many quirks, giving the purchaser a better sense of the property they seek to own. Secondly, they often have a better assessment of that property’s value; usually a higher figure than one might get from a less experienced appraiser. Altogether, the buyer receives a number of protections and benefits from choosing to go through the FHA.

FHA loans have been a true advantage to the housing market—since the foundation of the FHA, home ownership has blossomed, with the percentage of property owners receiving FHA assistance going from a mere 6-7% at the outset of the agency to approximately 70% today. In Chicago, most condos are not FHA-approved. Some lenders point out that the Chicago condo market has been experiencing a bit of a depression, and that a chance to stimulate this market assuredly lies in bringing properties up to FHA standards. The economy of an entire metropolitan area can be greatly boosted when there are more homeowners paying mortgages. Statistical analysis has shown that homeowners enjoy a significant increase in their quality of life, and that the wealth they produce and save ends up affecting their families for generations. With that in mind, it is to the benefit of all participants in the housing market to build and renovate properties that can be purchased by a greater number of people.

No Comments »

When the housing market falters and the economy is shaky, interest rates drop, and right now interest rates are at a historical low. In light of this, savvy homeowners have gone back to their lenders to refinance their mortgages. Due to the sheer number of homeowners currently employing this strategy, lenders are referring to this period as a “refi boom.”

The principles of refinancing a mortgage are simple: when interest rates drop, a homeowner can take their mortgage note and sell it to another lender—or even the same lender—in order for the new rate to apply to their loan, which will lower their monthly payments. This is not the same procedure, it should be noted, as a loan modification. In the latter, a homeowner facing a dire financial situation may request that their lender forgive a part of the loan or lower the interest rate even if it is supposed to remain higher. Under certain circumstances, the lender may agree, but having a loan modification on your financial record is not a positive by any means, and will affect your credit rating.

It may or may not cost you anything to refinance. It is important to consider how long you intend to live in your current home. If you expect to live there for a decade or longer, it might be worth the extra fees to obtain an advantageous refinancing structure, but if you only plan to be there for 3-7 years, you should look to find a refinancer who will not charge you for the mortgage restructuring.

The current “refi boom” is indicative of the uncertain status of the United States right now—the last time lenders saw this many people seeking to refinance was in the middle of 2003, when unemployment was high, the country was embroiled in two wars, and a couple of high-profile corporations, such as Enron, were ruined by their own malfeasance. Bad times in society will always, generally, lead to lowered interest rates, as money managers and the Fed work to re-instill consumer confidence. Conversely, these booms begin to die down as signs of recovery emerge. However, these booms only offer marginal help to the economy—while refinancing does allow homeowners to hold onto more of their money, that money will only help stimulate the economy back into health if the money saved is then used to purchase other goods and services. With unemployment at its current levels and general malaise among the American public, it may be as much as another year before this current “refi boom” ends.

No Comments »

The mortgage industry has seen a lot of changes in the past few years since the recession started. Many of the laws and regulations in place within the housing market are designed to protect buyers from fraudulent practices or other malicious enterprises. However, investors and lenders also need some form of protection against financial loss when a buyer fails to hold up his or her end of the transaction. For these creditors, there is mortgage insurance.

Like other forms of insurance, the mechanism behind mortgage insurance—also known as a mortgage guaranty—is that the insurer receives a premium, which will then be used to cover losses in case the borrower defaults on their mortgage. Generally, a lender will require that mortgage insurance be purchased if the mortgage loan is higher than 80% of the property’s sale price. The lender will decide the amount of loss coverage, which can range from 20–50%, or possibly even higher. The borrower may see the mortgage insurance premium reflected as a part of their mortgage payments, or in some cases the lender will choose to pay these premiums.

Some form of mortgage insurance has existed in the United States since 1880, although it remained an unregulated entity until 1904, when the state of New York passed laws authorizing private companies to issue insurance. At the time, however, insurers were only allowed to cover payments on mortgages owned by the original lender. In 1911, this law was amended to allow lending institutions to purchase and resell loans, and insurers were then encouraged to guarantee the property title as well, to make the mortgages more attractive to investors. For the next two decades these private companies thrived as real estate values climbed, and lenders were pleased to discover that few defaulted properties would sell at a loss. However, the real estate market collapse at the start of the Great Depression severely tested the myriad of bad business practices within the mortgage insurance industry, and as a result, the industry failed.

This failure led to government involvement in the mortgage market, specifically through the creation of the Mutual Mortgage Insurance fund, managed by the Federal Housing Administration (FHA). The FHA uses the fund to insure their own loans to prospective homebuyers, and was expanded after World War II to include war veterans through the Veterans Administration (VA) department. However, both the FHA and VA mortgage insurance programs have legislatively mandated limits to their scope—underwriting guidelines often exclude many prospective homebuyers, for example, and there is a ceiling value past which mortgages may not be insured.

Today, private mortgage insurers succeed or fail based on their ability to identify mortgage risk and decide if they wish to cover it. They may decline to cover a certain mortgage, or adopt strict underwriting conditions based on the property, the buyer’s credit history and job status, or a number of other factors. Within state regulations, they may raise premiums on riskier sales or use methods such as reinsurance or risk pooling to mitigate potential loss. Some mortgage insurers will adopt a strategy of trying to help borrowers in danger of default, through credit counseling and debt management, with the understanding that foreclosure on a property tends to be an unpleasant and costly process for all parties involved.

A home is a major investment for its buyer, which is why smart homeowners purchase adequate insurance to shield them against disaster. The mortgage, however, is an investment by the lender in the dependability of the borrower—and as such, it’s equally as important for them to purchase mortgage insurance to provide a safety net in case the borrower is unable to pay back the loan. Such systems are in place in order to maintain the stability of the housing market, and when they work well, all parties benefit.

No Comments »