FHA financing is a great option for buyers that do not have at least 10% as a down payment and/or do not have FICO scores of at least 720. And, there are some important things to know about FHA financing so that when a FHA buyer goes through the process, the stress and frustration is at a minimum, since the buyer is already prepared for the FHA process.
First of all, the main qualifying factors for a FHA loan is that the LTV (loan to value) can not be more than 96.5% of the purchase price, meaning that the buyer needs a minimum of 3.5% as a down payment. That down payment can be the buyer’s own money or be gift funds (funds that are given by friends, family members, employers, etc that do not have to be paid back). Under FHA guidelines, the seller can pay up to 6% of the buyers closing costs, but none of this money can go towards the buyer’s down payment. There is also an Up-Front Mortgage Insurance Premium (UPMIP) of 1.75% of the loan amount. This fee can be added to the loan amount. And, there is also Monthly Mortgage Insurance (MMI) of 0.55% of the loan divided by 12. Once you obtain 20% equity in the home, you can get rid of the MMI.
So, as you will see, FHA loans are not cheap loans to obtain, but when a buyer does not have at least 10% as a down payment and/or FICO scores of less than 720, it is a great option to get a buyer’s foot in the door to home ownership and the benefits definitely outweigh the negatives on a number of levels.
What is REALLY important to know when going through the FHA process and obtaining FHA financing is that this type of loan is absolutely a full document loan, meaning, the lender wants to see anything and everything about the buyer’s financial history, credit, bank information, tax history, income, debt, and anything else they can know about the buyer. The buyer needs to give the lender A LOT of documentation and information and this gathering of information can sometimes obtained by the lender throughout the entire transaction, depending on how complete the file was in the first place, when the package was delivered to the FHA underwriter for the initial preapproval.
The underwriters pick apart the information with a fine tooth comb and the information has to be extremely accurate and complete, or the underwriter will ask for additional supporting documentation. It can consist of explanation letters, more documented information, etc. For example, if the buyer had a nick name that is on some information, the buyer will have to explain it. If there is a lapse in employment, alimony, child support, etc, the buyer will have to explain it. If there is a ding on the credit, the buyer will have to explain it.
As a buyer for a FHA loan, you can basically be prepared to explain every detail of your life for the last 2 years. If you want the process to go smooth and faster, the best thing you can possibly do is to get with the lender and give as complete of a package as possible upfront. So, if you have a name change, issue with credit, etc, explain it in a letter upfront. Do not try to hide anything or leave anything out of this package, or else it WILL come back to haunt you and the underwriter WILL catch it and then the process will be delayed.
And, when you are in contract to buy a home, and the package is not fully complete, and the underwriter is asking for all kinds of information that you must gather, it can be very stressful, since now that you are in contract, there are deadlines to meet with the contractual obligations to the seller and deadlines to close the deal on time. Being thorough upfront is the key to success. And, choosing a good lender who is thorough and can help you through the process and gather all the information and screen it well BEFORE it goes to the underwriter is really key to a smooth transaction.
Also, FHA is very swamped with loans right now, so it is a good idea to ask for a 45 day closing for any transaction that is dealing with FHA. 30 days escrows are possible, but it is pushing the envelope and can be stressful to close in that amount of time. Also, asking for a long loan contingency period also takes off some pressure. I am working with a lot of buyers that are obtaining FHA financing and these are the types of things I am running into with these transactions. And, to avoid stress and frustration once a buyer actually finds a home, having the initial preapproval package as complete as possible, will really help a lot. And, making sure to choose a thorough lender definitely helps to make the process smoother.
And, of course, to really make the process run efficiently, the buyer would call me as their Santa Clara and Alameda County realtor who will stay on top of the process throughout the whole transaction and make sure everyone is doing what they need to do to get the deal closed, as well as stay in communication with the buyer consistently so that the buyer always knows exactly what is going on throughout the transaction.
Commercial Bridge Loans Made Easy
A commercial bridge loan is a great way to secure temporary financing on a commercial property. A bridge loan is designed for financing that is used when a borrower is expecting to sell a property quickly or refinance it within the near future. It is a “bridge” of fonancing until permanent financing can be obtained.
A good commercial mortgage officer can offer loans on a variety of commercial properties including apartments, retail, industrial, office, health care and mixed use. The one thing that borrowers need to know when securing commercial bridge financing is that many commercial lenders always look for an “exit strategy” to be certain that borrowers have a plan to retire the loan through selling or refinancing the property. Bridge financing is usually offered for terms of 12-24 months and many can be refinanced into low cost, long-term financing through a good commercial lender. Commercial bridge loans are not only for shorter terms, but are also often needed to close quickly.
An example of a bridge loan scenario is as follows: A borrower wishes to purchase a hotel, and is approved for a conventional SBA loan contingent upon two years of successful business operation. In order to fund the purchase the borrower arranges for the seller to Carry-back 30% of the purchase price, and secures a loan for the remaining 70%. The loan allows the borrower to acquire the property and establish the operating history necessary for long-term financing.
Many investors understand the importance of a bridge loan. The cost of the loan may be much less than a joint venture partner or nor doing the deal at all!
There is an article in the New York Times today about lawsuit loans. We run into these loans and the lenders who make them a lot because, after all, we are in the business of representing people with personal-injury lawsuits. Whenever possible, we tell our clients to avoid these loans because they are generally a really bad idea. The article does a good job of talking about what is really going on with these personal-injury loan advances and I would like to highlight a few key points.Pay
What are these lawsuit advances?
An unexpected injury can cause serious financial difficulty in an instant. A personal-injury victim may have medical bills and have to miss time from work. An injury might make work difficult or even impossible during the healing process and the personal-injury victim might not have the savings or an insurance policy to help absorb this burden.
Even if a personal injury victim has a valid lawsuit or insurance claim, the personal injury claim cannot be wrapped up overnight. Insurance companies and defendants don’t usually pay anything until it is over and the matter is finished and done. The personal injury claimant is forced to wait for compensation while the claim progresses or while litigation drags on. Waiting for this compensation for actual monetary losses can be devastating to the personal-injury victim and can leave them desperate for any source of funds.
Enter the lawsuit advance loan. They promise to lend the personal-injury victim money now so that bills can be paid and their lives can go on while this lawsuit drags on over time. They tell the personal-injury victim that they don’t even have to worry about paying it back; that if the case goes down, they don’t owe anything. The personal-injury claimant signs up, gets a check and the clock starts ticking.
Why are these advances a bad idea?
First, the interest rates are somewhere between obscene and disgusting. While many states and the federal government limit the amount of interest you can be charged for a loan, these companies get around those limits by making the loan contingent. That is, you don’t have to pay it back if you lose. That sounds like a good deal for the personal-injury claimant, but it isn’t. Here’s why:
Interest rates represent risk. If a bank deems you a more risky loan applicant than someone else, you will likely have to pay a higher interest rate to make up for that increased risk of default. If a bank quotes you an interest rate that is inappropriately high, you are free to go to a different bank to see if you can get a better rate at the market value. You can be sure that if banks could get away with charging higher interest to applicants with perfect credit they certainly would; the banks would be maximizing revenue and minimizing risk. If there were only a few banks in town and everyone (even those with perfect credit) needed a loan, the bankers would be rich in no time.
Lawsuit advances should be viewed in the same way. The lenders contact the attorney to make sure this loan is a good idea for them. They look at the medical records and speak to the personal injury attorney. They look at the accident report to make sure it wasn’t the victim’s fault. They have attorneys review the case for likelihood of success. They do their homework. It can be assumed that these lenders are not cutting big checks to people with cases that aren’t going anywhere and in that sense, they get to minimize risk far easier than any banker who writes a mortgage ever could.
Adding to this ability to minimize risk is their ability to charge interest rates in far excess of that risk. There are a few lenders around and they all charge extremely high interest. The interest rate tends to be the same regardless of the actual risk involved in this trial. An injury victim might have a settlement in place, a done deal that is waiting on some formalities to close. If that person needed an advance now, they would still be charged the usury interest rates that are in place for all of the personal-injury victims. They will charge as much as they can get away with and the people they are lending to are in a position of weakness and need the money. The term “predatory lending” has never been more appropriate.
Like a virus…
Another big problem is that the loan quickly infects the lawsuit. If the insurance company caught wind of a loan like this, its people would make the case as long and drawn out as possible. The clock is ticking the whole time and it becomes a race on the part of the personal-injury victim to get this thing done no matter the cost. A personal-injury claimant has an incentive to settle cheap early rather than wait for a just verdict because the juice is running and it quickly snowballs. A $10,000 loan can become $20,000 within a year. The next year it could be $40,000 and so on. By the time a case is heard by a jury, it could be several years after the accident. If the matter is appealed, the appeal could drag the process on for another few years. An appeal could result in another appeal or even another trial. The interest would be running the whole time.
It is quite within the realm of possibilities that the presence of one of these loans would lead a reasonable personal-injury plaintiff to either accept a bad settlement offer if it comes early enough or to refuse a good settlement offer if it comes late enough. This poor decision-making would be reasonable under the circumstances and is a direct consequence of a personal-injury loan advance and its unusual nature.
Lawsuits are stressful enough without adding a ticking clock. I would like to see these loans regulated more closely and to see interest rates more in-line with actual default rates. Until then, stay away or at least use them at your own risk.
If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.
In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.
Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.
Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.
Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.
Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.
In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.