Top 10 Truths: Conventional Loans vs. FHA Loans

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Conventional loans and FHA loans are the most common 30-year fixed rate programs out there today.

Here are the top 10 things you need to know about conventional vs. FHA loans:

  1. Conventional loans only require mortgage insurance when the down payment is less than 20%. FHA loans require mortgage insurance on all loans regardless of the down payment.
  2. FHA and Conventional loans both are NOT first-time home buyer programs.
  3.  Conventional Loans charge less in monthly mortgage insurance premiums than do FHA loans. In fact, FHA charges some of the highest monthly mortgage insurance premiums in the business–up to three times more than conventional loans, depending on the buyer’s FICO score.
  4. FHA calculates the cost of monthly mortgage insurance based on the down payment and loan amount. Conventional loans do the same but, in addition, take the borrowers’ FICO score into consideration. FHA’s mortgage insurance premiums are unaffected by a low or high FICO score. A high FICO score makes a big difference in mortgage insurance premiums for conventional loans only.
  5. FHA charges a one-time upfront mortgage insurance fee in addition to monthly mortgage insurance fees. Conventional loans do not have this requirement. FHA does allow the option of financing the fee into the loan OR paying it out of pocket. 99% of all FHA buyers finance the fee into the loan.
  6. FHA requires mortgage insurance for the life of the loan. Conventional loans only require mortgage insurance until 20% equity in the property has been reached, either because the principal loan balance has been paid down or the property has gone up in value.
  7. FHA allows buyers to have less-than-stellar credit yet still qualify for a loan. Conventional loans have stricter credit guidelines.
  8. FHA is best known for the low minimum 3.5% down payment. Conventional loans require 5% down for loans up to $417k and 10% down in “high-balance” areas. Not all counties offer high-balance conventional loans. Check the Fannie Mae website for loan limits in your area.
  9. FHA and Conventional loans both offer a way for buyers to generate lender credits (money) by raising the interest rate slightly from the current rate. FHA loans tend to generate more credits than Conventional loans. Lender credits can be applied to the buyer’s closing costs.
  10. FHA is only a good option if a Conventional loan is not an option.
    Whether you’re just starting to shop for a loan or you’re a seasoned veteran, understanding the details of these loan programs can be a bit confusing. If you have additional questions, email me anytime.

Top 3 Tips to Get Your Offer Accepted TODAY

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Getting an offer accepted is never easy, especially when housing inventory is low and home buyers are plentiful. Many properties receive multiple offers from multiple buyers, all bidding on the same property.

Here are 3 top tips to stand out from the crowd and help get your offer accepted!

  • Outbid Your Competition: Buyers have the tendency to want to underbid on a property. Why not overbid instead? Offering an additional $5,000 can make the difference between owning your dream home or having to keep looking and make offers for months to follow. An additional $5,000 to your loan only adds about $30 to your monthly payment.
  • Work with an Expert Realtor: Choosing an expert realtor will help you tremendously. Take their advice and follow their lead! Remember, you’re on the same team. They want you to be highly satisfied so you become a client for life. Expert realtors are always focused on your best interest.
  • Write a Compelling Offer: You want to stand out from the masses and be attractive to the seller. So keep it simple, and avoid asking for long escrows, seller credits, or anything else the seller may find disagreeable, unless you absolutely have to. Once you’re in escrow with an accepted offer, the seller will often be more willing to negotiate.

If you’re offer is not accepted, don’t be too disappointed. Chalk it up to the fact that “it was not meant to be,” learn from the experience, and know that a better property is around the corner waiting for you!

How To Use Your IRA To Flip Houses

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How To Use Your IRA To Flip Houses

One of the best investments that one can make is in a house. Houses will frequently appreciate to many times their original value. However, most of us do not have the capital necessary to purchase extra houses and reap the rewards. Additionally, we can make a lot of short term profit by flipping a house, but again, we are often constrained by the amount of cash that we have on hand. However, you can legally use your IRA to purchase a house, and even end up not needing to pay taxes on your profit. This will give you the cash that you need to get started. As a caveat, this method requires a considerable amount of paperwork, attention to detail, and a good work ethic. It is definitely not a method for everyone. With that said, here are some of the steps that you will need to take in order to take an active role in investing in your future.

  • Ensure that you have the funds necessary to fully fund your purchase. You will need a sizeable amount of cash in your IRA to be able to go through with a purchase.
    Convert your IRA into a “self-directed” IRA. This will require some research into the best method for you, but is essential. If it is not done correctly, you will not be able to use these funds while maintaining the limited tax protection.
  • Find an administrator. You will be obliged to find an administrator to serve as the custodian to your self-directed IRA. This means that there will be a third party giving oversight. Ensuring that you find a reputable and trustworthy administrator will be critical in ensuring that you do not end up making mistakes.
  • Look closely at the rules. This is an area where there are many rules governing what can and cannot be done with the property. Generally, you and family members cannot live in the property. While this is typically not what you would be doing while flipping, it is important to ensure that all rules are followed. A violation could lead to huge taxes being levied on your transactions.

Some things to remember are that you need to be very cautious when examining the laws and regulations. Additionally, this is not a passive investment. It will require your time and energy. If you are not willing to give this the attention that it will require, you will not be able to make the money that would otherwise be possible.