Hello, new guy here. Looking for some information on FHA mortgage loans. I have been to the official sites, and checked things out. Now, I want experiences, good and bad. Some backround, my daughter wants to buy a house. She checked with FHA, and they gave her an 8 page application to fill out and return along with her $58.00 fee. They will then tell her how much money she is permitted to borrow. I have heard some bad reports of ever increasing payments, and loans that are not paid off by the end of the loan term. Please tell my your story.
If she has a variable rate loan, in an economic environment where interest rates are rising, the payments will naturally rise; in the current environment, where interest rates are going down… well you know the rest.
Are you talking about the loan being improperly amortized so that there is a balance left at the end of the term? I’m just not sure what you mean. That is of course easy enough to check with any calculator that does amortization.
If FHA requires insurance (PMI) because the amount of the loan is more than 80% of the FMV of the property, when the value of the house increases to the point that the remaining loan balance is 80% or less of the FMV, she can request the PMI be discontinued.
I had an FHA loan at one time and never had any problems; in fact it was great because I closed for around $400.00. Not only that, my neighboor assumed the loan without having to qualify. They no longer offer that option. The only snags were that it took 6-7 months to finally close; and they were picky about the condition of the house and the owner had to do some repairs, which I had to pay for (however, these were added to the loan by some clever maneuvers on the part of the real estate agent). Actually it is usually the sellers that have a problem with FHA mostly due to the time it takes to close. My loan was years ago so maybe they don’t have that problem anymore.
Well, so far most of what I’ve heard is friend of a friend stuff, nothing I can really verify. I was told about a person that thought he had paid in full, only to find he owed more. The rising payment stories I heard were not of the variable rate type, the payments just increased each year until they were very high. I’ve heard other bad tales about poor service, etc.
Personally, years ago when I applied for one, I was given a run around, with a different reason each time I visited the office. I was told that my car was too new, to sell it and buy an old one to qualify. Next trip I was told my income was too high, which was laughable because we scraped to get by with the rent we were paying. My final visit, I was told that I gave the application to the wrong lady and she disqualified me. All this while two co-workers, similar in income and circumstance, were approved with no problems.
Thanks for the reply.
Sumthin’ sounds weird here. We took out an FHA loan and didn’t pay the FHA squat up front. We went through a local bank like most other folks. They have loans available that go through the FHA program. Typically you don’t get loans from FHA themselves, they just insure the bank loans.
We’ve had nothing but positive results from our loan. We were able to close with 3% down. And they recently changes the laws to eliminate the monthly PMI automatically after 20% equity is accrued.
There are caps on how much a FHA loan can be for, but apart from that it’s a lot like a normal mortgage.
When we got an FHA loan for our house, the procedure was relatively similar to getting a conventional loan, with a few exceptions. FHA limits the size of mortgage they will write, based on where the house is. I remember thinking that the limits were kind of low, and I believe they have gone up since (five years ago).
Part of what makes the process longer is the required FHA inspection. They send an inspector out to look over the home in detail, and then require you to make any repairs they deem necessary. Repairs must be made before the loan can be issued. Obviously, this can add a lot of time and negotiations to the process. I highly recommend your daughter work with a good Buyers Agent (a real estate agent contracted to work for you, not the seller), especially one who has experience with FHA (many will).
When we bought our house, we knew we were going for an FHA loan, so IN THE OFFER, we stipulated that the seller would pay for up to $1000 of required FHA repairs. The seller agreed, the offer was signed, and we began working with FHA. Of course, just like a normal house inspection (don’t skip that part – FHA is looking for different things than a home inspector might look for) the agreement to purchase is done before the inspection, so your offer should include a line that says something like “subject to buyer acceptance of home inspection.” This gives you an out if something unforseen turns up, like a bad furnace or green goop burbling out of a pipe in the backyard. But I digress…
The FHA inspection is looking for items that represent safety or structural concerns – things that would make covering the house a bad risk. In my case, they cited the wet basement, the uneven cracks in the concrete patio, peeling paint on the eaves, and a broken porch step as needing to be fixed BEFORE closing on the house. But the FHA inspections are notoriously inconsistent in what they look for. We were concerned about the crumbling chimney top – they didn’t say a thing. They don’t like things like cracked window panes, peeling paint, or old electrical wiring (my brother had these experiences on a ninety year old house he bought.) There were a list of other concerns that the realtor pointed out to us that FHA might require repair of, but they were also overlooked. We seem to have caught the inspector on a good day.
Now, in my experience, FHA can be negotiated with, but just a bit. They wanted us to excavate and waterproof the basement (a deal-breaker) but we told them that regrading around the house to move groundwater away would fix the problem. (They agreed - it did.) But it was made clear to me that they did not usually make exceptions to their requirements. We got the topsoil, paint, hired a contractor for the patio and the porch, and did all the regrading work ourselves to save money. (Not counting sweat-equity, we got it all done for just under a grand, and the seller paid for this work at closing.) Then when all was finished, they re-inspected and signed off. All the work and inspections, as well as waiting for approval, added several weeks to the process.
(Didn’t intend such a long post, but I hope it’s helpful.)
Just a few last words about the loan process. We got our loan through Chase-Manhattan. Most lenders will be able to write you an FHA loan. As I understand, it’s the loan officer’s job to make all the arrangements for the loan. Any application fees I believe were due at closing, not upfront. If your daughter’s getting a run-around, and if she has good credit, she ought to walk away and find a different lender. DON’T go to a “Good Credit-Bad Credit-No Credit” kind of lender if your credit is good – you’ll usually get a better rate from a mainstream lender.
And unless you have an adjustable rate mortgage (ARM), your P&I should remain the same each year. What might change is how much you are required to put in escrow for taxes, insurance, and such. The amounts are estimated, and as such may need to be re-evaluated each year. In our case this caused a yo-yo affect for the first few years, because of something about how the city worked its taxes. The benefits to an FHA ARM was that it had a one-percent annual increase or decrease limit (most loans are two) and an overall 5% cap. (If your original loan was for 8%, and a year later rates were at 9.5%, then they could only raise your rate to 8%. And over the life of the loan it could never go higher than 13% or lower than 3%.)
Good luck with the process, and as I said before, get a good Buyers Agent. They can help you with all this crap.
Paul
Oops, sorry. That should have read:
(If your original loan was for 8%, and a year later rates were at 9.5%, then they could only raise your rate to 9%. And over the life of the loan it could never go higher than 13% or lower than 3%.)
Good info from Paul the Younger. I had forgotten all about the inspection process. The FHA inspections in our area seem to be typically done by a real estate agent instead of a true home inspector (we had a real home inspector come in earlier for our benefit). They’ve got a checklist to use. They got us for things like a loose railing on the front steps, lack of GFCI outlets within so many feet of water, etc. The reason they use a real estate agent is that the house also has to be appraised. If the appraisal doesn’t exceed the loan amount, no loan.
Side note. Friends of ours in a similar situation (definitely not us) just happened to know the inspector randomly assigned to look at the house. We, sorry they, were able to get the inspector to cite the house for needing a new paint job, chimney repairs, and a new garage door. All of which were then negotiated with the seller. Because the deal happened in winter when it was too cold to paint or rebuild the chimney, the loan was made with the stipulation that the defects would be completed within so many months, after which a reinspection would be done. The negotiated repair money was put in escrow and once completed went to the buyer.
It is a really good idea to put a clause in the contract saying you’re going for an FHA loan and that if you don’t get it the deal is void. It may seem stupid, but if the FHA inspector gets you for something big (say a leaky basement), you can ask the seller to fix it and if they don’t, you have an out.
The only real horror story I’ve heard was for a new construction house. Friends of mine were building a house and decided to go FHA. They contracted with a builder who would build the house and then turn it over to them at closing, thus avoiding a construction loan. When the house was near completion, they discovered that for new construction, FHA required some expensive termite treatment which the builder had not counted on. It turned into a real fiasco between the buyer, builder, and FHA.
Oh, and I couldn’t agree with Paul the younger any more when he said get a good buyer’s agent. We nearly got screwed buying our place (short version: We go to open house, submit an offer with seller’s agent allegedly acting as double agent. Agent returns with counter-offer, we give counter-counter-offer. I get phone call from seller in other state asking when our bid went in [they had deal with agent - sell within 30 days 5% commision, over 30, 6%. our 2nd bid on day 31] I tell them 1st bid on certain date, 2nd bid on certain date. Response: what 1st bid? Agents were playing hanky-panky, they are required by law to pass all offers to the sellers, regardless of amount. Result, we canned the agents and did a FSBO. Okay, not so short.)