Mortgage Information and insight from a Utah Mortgage Lender.

Saratoga Springs, UT - Rural Devlopment Loans - USDA

 
(A view from Saratoga Springs looking back over Utah Lake at Mt. Timpanogos)

Saratoga Springs, UT

What is the USDA Rural Development Loan?  Many of you have been asking the same question.  It sounds like a loan that an egg farmer would take from the government to improve his chicken coops, and in some cases that may happen on the commercial side.  What many people are now finding out is that the USDA also lends on residential homes located in what is deemed to be rural areas.

Many Utah residents can benefit from these loans as over 2/3rds of Utah is deemed to be "rural".  If you are looking to buy a home in Utah county in one of the following cities then pay close attention as this loan may be your very best option.

Saratoga Springs, Eagle Mountain, Payson, Elk Ridge and Santaquin are all found in the eligible areas for USDA home financing.  Click this link to view the map and read more details on USDA loan programs.

The USDA mortgage is much like FHA in that it does require an upfront fee.  In the case of the USDA loan it is called a guarantee fee instead of FHA's terminology which call's it upfront mortgage insurance.  Ultimately it is the same thing.  The upfront fee from both loans is essentially pooled in a fund that is used to guarantee the lender/investor against any future losses on the loan in case of default by the borrower.

The guarantee fee for new USDA loans is 2% of the loan amount.  In the case of a $200,000 loan the borrower would pay a $4000 one time upfront fee to the USDA to guarantee their loan.  The nice thing about the USDA loan is that much like FHA you are allowed to finance the fee into your loan.  This loan already allows for 100% financing for credit qualifying borrowers whose job history and debt and income are in line with the underwriting requirements.  This is a true 102% loan to value loan when you take in to account the fact that you can finance the 2% guarantee fee above and beyond the price of the home.

What an amazing option for those that have little or no down payment.  If you can save enough money for an earnest money deposit you can be on your way to home ownership.  Debt to income ratios on this loan are lower then conventional and fha loans so you may not qualify for quite as much home with the USDA loan but the USDA loan does not have monthly mortgage insurance so your monthly payment is also lower then it would be on a conventional or fha loan which does require 3.5% or 5% down respectively.

If you are looking to buy a home in Utah County and down payment is an issue, consider the USDA rural development loan, it just might be the ticket you are looking for.

Remember the USDA loan can be used in parts of if not all of Saratoga Springs, Eagle Mountain, Spanish Fork, Payson, Elk Ridge and Santaquin.  If you don't have a down payment, don't give up looking all together tell your agent you would like to expand your search into one of these beautiful cities.  Then lets get you pre-approved for a USDA Rural Development loan today.

Stetson Lowe - www.utahloantips.com

FHA Increasing Upfront Mortgage Insurance Premium

 

This just in....

FHA is going to increase the upfront mortgage insurance premiums on all purchase, streamline and full credit qualifying refinances to 2.25% that is up from 1.5 and 1.75% currently.

For those of you who don't know what upfront mortgage insurance is, it is a premium paid to HUD to insure a portion of your loan against the borrowers defaulting.  For example the FHA insurance may guarantee the first 30% of the loan value against any loss including interest.

So when you buy or refinance your home using an FHA loan you now pay and will continue to pay a big chunk of that loan upfront to FHA to go into this insurance pool.

It must be that all of the foreclosures have finally drained the tank putting FHA into the RED therefore causing them to up the upfront premiums to help beef back up the reserves to protect against further losses.

My clients already were feeling the pain from the increase from 1.5% of the loan amount to 1.75% which took place about 18 months ago.  Now FHA is taken it to them once again.  It has always been and will continue to be my opinion that it should be a sliding scale based on the borrowers past credit history.  This premium should not be a one size fits all approach with the borrowers with a 800 fico being charged the same amount as the borrowers with a 620 fico.  Everything does not always have to be equal in life, if you take good care of your creditors and pay your debts on time always you should be rewarded, I have always felt.

Apparently the folks in Washington DC don't feel the same as they are sticking to their equality for all home owners with this latest increase.

I think that part of it is rubbish. 

I have posted the text from the official mortgagee letter from today January 21, 2010 below.

Thanks,

Stetson Lowe - Security Home Mortgage - Orem, UT 801-318-4996

 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

WASHINGTON, DC 20410-8000

ASSISTANT SECRETARY FOR HOUSING-FEDERAL

HOUSING COMMISSIONER

January 21, 2010

MORTGAGEE LETTER 2010-02

TO: ALL APPROVED MORTGAGEES

SUBJECT: Increase in Upfront Premiums for FHA Mortgage Insurance

Effective for FHA loans for which the case number is assigned on or after April 5,2010,

FHA will collect an upfront mortgage insurance premium of 2.25 percent. This policy change will

increase premiums for purchase money and refinance transactions, including FHA-to-FHA credit-qualifying

and non-credit qualifying streamlined refinance transactions.

Programs Covered by Insurance Premiums Shown Below

The upfront and annual premiums and the requirements described in this Mortgagee Letter

apply to all mortgages insured under FHA's Single Family Insurance Programs except those listed

below:

- Title I

- Home Equity Conversion Mortgages (HECMs)

- Hope for Homeowners (H4H)

Section 247 (Hawaiian Homelands)

Section 248 (Indian Reservations),

- Section 223(e) (declining neighborhoods)

- Section 238(c) (Military Impact areas in Georgia and New York)

Upfront Premiums

FHA will charge an upfront premium in an amount equal to the following percentages of the

mortgage:

• Purchase Money Mortgages and Full-Credit Qualifying Refinances = 2.25 percent

• Streamline Refinances (all types) = 2.25 percent

• HOPE for Homeowners (Delinquent Mortgagors) = 2.00 percent

• Home Equity Conversion Mortgages = 2.00 percent

www.hud.gov espanol.hud.gov

Annual Premiums

Annual premiums will not change at this time.

For FHA traditional purchase and refinance products, the annual premium, shown in basis

points below, is to be remitted on a monthly basis, and will be charged based on the initial loan-to value

ratio and length of the mortgage according to the following schedule:

• HOPE for Homeowners (delinquent mortgagors)

In accordance with guidance issued in Mortgagee Letter 2009-43, HOPE for Homeowners

borrowers will pay 75

basis points (.75 percent of the base loan amount), regardless of the loan to-

value ratio, which is collected monthly.

• Home Equity Conversion Mortgages (HECMs)

The annual premium for all HECM borrowers is

50 basis points (.50 of the outstanding

mortgage balance) and is collected monthly.

First-Time Homebuver with HUD-Approved Pre-Purchase Counseling

The National Housing Act, as amended by the Housing and Economic Recovery Act in

2008, authorizes upfront premiums of up to 3.00 and authorizes premiums of up to 2.75 percent for

first-time homebuyers who complete HUD-approved pre-purchase counseling. Since the upfront

premium rate of 2.25 percent remains below the statutory cap, no variable rate for counseled firsttime

homebuyers is provided for under this Mortgagee Letter.

If you should have any questions concerning this Mortgagee Letter, call 1-800-CALLFHA.

Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-

877-TDD-2HUD (1-877-833-2483).

Sincerely,

David H. Stevens

Assistant Secretary for Housing-

Federal Housing Commissioner

The Lowe Down - by Stetson Lowe

Tonight as I sit here and unwind from yet another hectic day in the office I felt impressed to get out the laptop and share some insider mortgage insite.  There is so much going around out there about the mortgage industry and today's economy but I am going to hit you plain and as simple as I can, and I will not patty cake you.

I had a very candid conversation today with an executive from a national bank.  One of the biggest in the US today.  It was interesting to hear his point of view and to see what we agreed on and to see what we admittedly disagreed on as well.  One of the most interesting facts he brought to my attention today was in regards to the Fed's "setting the rate" so to speak in the bond market.

This is something that the government did in the student loan sector of the banking world some time ago and it has all but alienated all of the lenders from that industry so that now the government is the only player in the game.  They are standing there holding the bag on almost all student debt today which makes the industry far less competitive and all but impossible to navigate for borrowers.  You see it is not worth it for private investors and banks to play along with the government in a game that is rigged.  One where it is hard to turn a profit and the red tape and bureaucracy force the lenders to spend more then they earn just to stay compliant.

This fiscal policy has failed miserably and yet the talking heads in DC seem to think that this same policy should be adopted in the mortgage industry as well.  Yeah that usually works, if at first a policy doesn't succeed do it again in another industry?? Whatever...

Back to the Feds setting the rate.  This is where they are basically buying coupons (bonds) at a certain rate no matter what the market is dictating that day or no matter what supply and demand are bearing.  Essentially falsely inflating or deflating the rates for that day in an attempt to "set a target rate".  It has been proven that our market is much more effectivein setting its own rates from day to day and from week to week then the government falsely trying to replace supply and demand.  I'll take free and open markets any day of the week for a healthy economy.  I am not saying that there is not a need for the government to sure up a badly damaged credit market, I just think they may be going about it the wrong way.

What I am seeing in the wholesale and retail markets is Banks so unsure what the feds next move is that they are loosing interest in the game all together.  I believe that it was Chase that all but completely pulled out of the mortgage business at the end of January.  They are "over it" so tospeak in all the games and tricks that the government is trying to pull.  Basically saying "we are out" let us know when things get back to normal and then maybe if we feel like it we may jump back in at that point.  Until then we can more then replace our mortgage income by buying up troubled banks for pennies on the dollar and then selling off their assets piece by piece making billions of dollars, oh and by the way we will take a multi billion dollar line of credit from the government to help us do this if they are stupid enough to give it to us.

We now have 28 major players left in the Mortgage Market.  Just over 2 years ago there were over 200 lending institutions, private equity firms, insurance companies and more fighting over these bundles of loans....fast forward to today there are 28.  Less demand means over abundance of supply, couple this with Fannie and Freddie changing their guidelines almost every single month and mortgage insurance companies announcing at the drop of a hat that they will no longer insure mortgages with this credit score or that loan to value and you have what we are facing today, banks that are so gun shy that they are going to get stuck with loans that are unsellable on the secondary market, uninsurable thereby making them unsellable, or with rates that are far to low to attract any buyers in a market that has had less and less interest domestically and internationally.

I hope that this has shed some light on what is really going on in the mortgage market today.  Why yields are at or below all time lows yet the yield spreads are as large as they have been in a decade. And why underwriting times are longer and longer and why you hear it is harder to get approved today for a loan then even 2-3 months ago.

2003 was the largest mortgage origination year ever with over 4 trillion dollars in mortgages originated during that year alone.  It is predicted that if rates stay low there will be a demand for 15 trillion dollars in mortgages to be originated between refinances and purchases this year (2009) in the US.  That is 4 times the all time record and with only 1/10th of the banks actually funding loans compared to 2003.  The numbers don't add up and something has got to give or we will see 4-5 month turn times to close a loan...it feels like a train wreck waiting to happen.

If I were the one setting policies I would see how we could make the mortgage market more attractive to investors with incentives, warranties and tax cuts.  I certainly would not be competing with or falsely setting a market to the detriment of that market.  Hey but that's just me.

The key to obtaining financing this year is going to be working with someone that will help you navigate through these treturous waters that are the mortgage industry today.  I am here to help, so give me a call 801-318-4996 or email me at stetsonlowe@gmail.com and we can get the ball rolling right away.

Dedicated to giving you the inside scoop.

Stetson Lowe - The Mortgage Insider - www.utahloantips.com

What is "Private Mortgage Insurance" and who needs it?

If you're planning to take out a home loan you may have heard the phrase “private mortgage insurance” thrown around. So what is it and who needs it?

In general, a lender will require you to obtain private mortgage insurance when your home loan is worth more than 80 percent of the purchase price or appraised value of the home.

Basically, most lenders consider the ideal borrower as someone who can fund 20 percent of the home price. This shows that the borrower has significant “skin in the game” - by investing a significant amount of money in the home they demonstrate a high level of commitment to the home and to meeting their loan repayments.

Moreover, it means that should the borrower default on the loan they will have equity in the home which then can be sold and used to pay off a good chunk of the outstanding mortgage. Accordingly, by lending to such a borrower the bank is taking less of a risk than if they lend the same amount of money to a borrower without such equity.

However, the bank won't necessarily refuse to lend to you if you have less than a 20 percent down payment. What they will do to reduce their risk is to require you to purchase private mortgage insurance!

Private mortgage insurance or “PMI” provides security for the bank in assuming the risk associated with lending to someone with less than a 20 percent down payment. This is because if the homeowner purchases PMI and they default on the loan, the insurance company will kick in and continue making interest payments to the lender and in cases of complete foreclosure the insurance company may also be required to pay any deficiency balance that was not covered when the home was sold at auction.  This type of insurance policy all but guarantees the lenders will not lose money on a loan with PMI.

The Federal Government has established regulations governing the imposition of PMI since it presents a significant additional expense for consumers. In particular, the Homeowner’s Protection Act specifies particular rules that lenders must follow in relation to private mortgage insurance. These rules are designed to protect the borrowers and save them money. For instance, when a lender requires you to obtain PMI they must inform you of the amounts you must pay, when you must pay these amounts, the date you can stop paying them, when the PMI will automatically be canceled, your rights to terminate the PMI, and a phone number you can call to cancel the insurance.

Although many home buyers who borrow more than 80 percent of the purchase price of a home must buy PMI, there are also other circumstances where you will also have to pay for such insurance. The most common instance is where you have a poor credit score. A poor credit score means that you are a higher “credit risk” to the bank, such that they will desire you to have PMI.

So how much does private mortgage insurance cost and when do you need to pay it? Well, you will typically be required to pay around .5 percent of the total loan value for PMI. What's more, a lender will usually want the entire first year's premium up front at the close of the home purchase. So if you have a loan of $200,000, your PMI will cost around $1,000. In most cases, you will need to continue paying for the private mortgage insurance until you have paid at least 20 percent of the loan value down. Once you have built this level of equity in the home you will no longer be required to pay for the insurance.

Despite the additional expense presented by PMI – and the obvious attraction of having at least a 20 percent down payment – PMI is not all bad news. In fact, it may be a small price to pay to get into home ownership earlier rather than later. However, it's best to discuss the best strategy – whether it's saving a larger down payment or using a smaller down payment and buying PMI – with your mortgage planner.  Reply to this post under the comments section with any questions you may have concerning PMI.  For an independent review of your current PMI and when you can plan to cancel it email me at stetsonlowe@gmail.com.

Here is a link to a PMI company that I use to quote PMI rates you can shop for your own PMI using their easy pricing engine.

 

In my first few years in the mortgage business I rairly originated a loan with PMI because it was cheaper to do an 80/20 loan.  With the passing of these 80/20 loans PMI is something we are all having to come to terms with.  I hope this post will help you understand the basics of PMI.  The dreaded insurance that WE have to pay for that only BENEFITS the dang lenders!

 

Keeping you informed,

 

Stetson Lowe - The Mortgage Insider - UtahLoanTips.com