Most of us need to borrow some money at least at one point of
time in our life. When we want to buy a car, to study at the
College or University, when we want to buy a house or home, when
we need money to start our own business - even when we use our
credit cards.
There are many types of loans and mortgages, such as FHA loans,
Student loans, College loans, Business loans, Personal loans,
Commercial loans, Payday loans, Auto loans, Car loans, Vehicle
loans, Mobile home loans, Motorcycle loans, Military loans,
Construction loans, Home loans, house loans, home equity loans,
Bridge loans, Disaster loans, farm operating loans, Agriculture
loans, Debt consolidation loans, Direct Loans, Government loans,
Unsecured loans, refinance/remortgage loans, Bad credit loans,
etc., just to name a few.
Within each loan term there are additional sub terms such as
Fixed rate vs. Variable rate, Adjustable rate, ARM, PITI, HELOC,
Balloon Mortgage, reverse mortgage, and other bewildering
financial terms we will try to clarify here.
What is FHA
Home mortgages are important part of the loans universe but we
will concentrate here On a specific one called FHA. The Federal
Housing Administration (FHA), a wholly owned government
corporation, was established under the National Housing Act of
1934 to improve housing standards and conditions. Its goal was
to provide an adequate home financing system through insurance
of mortgages, and to stabilize the mortgage market.
FHA is not a loan, It's an Insurance! If a home buyer defaults,
the lender is paid from the insurance fund. An FHA loan allows
you to buy a house with as little as 3% down payment, instead of
the higher percentages required to secure many conventional
loans. Taking advantage of the FHA loan program is a great way
for first time buyers, or anyone with a shortage of down payment
funds, to buy a home. It is not a program reserved only for
first time home buyers. You can buy your third or fourth home
with an FHA loan. The only stipulation is that you may only have
one FHA loan at a time.
FHA helps low and moderate-income families purchase homes by
keeping the initial costs down. By serving as an umbrella under
which lenders have the confidence to extend loans to those who
may not meet conventional loan requirements, FHA's mortgage
insurance allows individuals to qualify who may have been
previously denied for a home loan by conventional underwriting
guidelines. It also protects lenders against loan default on
mortgages for properties that include manufactured homes,
single-family and multifamily properties, and some
health-related facilities.
The two very basic terms you need to understand is A.PITI and B.
Long Term Debt. PITI stands for Principle, Interest, Taxes, and
Insurance. It is with relations to your Mortgage and property
housing total monthly cost. Your maximum PITI should not exceed
29% of your gross monthly income.
Long term debt includes such things as car loans and credit
cards balances. In order to qualify for FHA loan your PITI +
Long Term Debt should not exceed 41% of gross monthly income.
This is much lenient terms compared to conventional loan terms
of maximum PITI of 26% - 28% and Total PITI + Long Term Debt of
33% -36%.
Qualifying for an FHA loan you need the following:
- Good credit history that shows you meet your financial
obligations.
- PITI + Long Term Debt not to exceed 41% of gross monthly
income.
- Sufficient cash down payment at time of closing. 3% of the
total cost.
- Closing expenses cost of 2%-3% of the price of the house.
(Homeowner's Insurance, Attorney's fees, title fees, and title
insurance, Private Mortgage Insurance if you are paying less
than 20% down, the loan origination fee, and a fee that goes
into the FHA insurance fund).
The FHA ARM - Adjustable Rate Mortgages is a HUD -US Department
of Housing and Urban Development, mortgage specifically designed
for low and moderate-income families who are trying to make the
transition into home ownership. At the time it is issued, the
ARM usually has an interest rate several percentage points below
a fixed rate mortgage.
The interest rate can change as market conditions change. If
interest rates go up, so does your mortgage payment. If they
come down, your mortgage payment comes down, too.
The reverse mortgage is often of interest to senior homeowners.
This loan provides cash for living, health or other expenses.
Payments are made to the borrower in a lump sum or monthly. Most
reverse mortgages are issued to those 62 and older who own a
debt-free home with no tax liens.
A Home Equity Line of Credit (HELOC) lets you use equity in your
home to pay for home improvements, debt consolidation or other
financial goals. With an acceptable debt, credit and employment
history, you may be able to borrow up to 85% of the appraised
equity in your home.
Balloon Mortgage - the buyer pays interest for three to five
years on a balloon mortgage. After that the entire principal
comes due all at once.
About the author:
Amit Laufer is a writer & internet marketer. MBA & Bsc.
Computers and Information Systems. Owner & Editor of:
http://www.loans-money-infoweb.com
