FHA Home Mortgage Loan Interest Rates

Homeowner Facing Foreclosure: FHA Loans May or May Not Be Best for You

On July 26th 2008, the congress signed a 300-billion-dollar foreclosure rescue bill to help homeowners facing foreclosure to save their homes, rescuing Fannie Mae and Freddie Mac.

To qualify for it, your mortgage has to meet these criteria:

-It is a house where you live in (residential)

-The mortgage was issued between June 2005 & January 2007.

- You must be spending at least 31% of your yucky monthly income on mortgage payments.

-It looks as if you may be getting difficulties to meet your monthly home repayment in the future.

Then, what to do now?

-You have to leave any other debt you have on the home such as home equity loan.

- You can’t take out another home equity loan for another 5 years on the property.

-The original lender has to agree to take a loss on the current mortgage.

Due to the current economic downturn, mortgage companies might gladly give up subprime loans to clear up the company’s negative credits. Mortgage companies on average lose $50,000 per foreclosed home, so they might be willing to take a smaller dent on their loan then to risk foreclosure.

Just so you know, the FHA requires an annual insurance premium of 1.5% of the mortgage for the FHA to guarantee the loan – which is a pretty hefty monthly insurance premium to pay. The FHA is requiring a 3% “Exit Fee” on sale of the property plus a share of the profits on the sale of the house. If the property is sold in the first year, the FHA keeps 100% of the profit. So if our $200,000 dollar home sold for $220,000 FHA would keep the $20,000. This profit sharing drops 10% a year till year five then after that the FHA keeps 50% of the profits.

So if you own a home for ten years, the market value increases 5 %, the value of your $200,000 home would be $325.775. Your profit in those ten years would be $125.779. The FHA would keep 50% $62,887.50 plus the 3% exit fee of $9,773.25 if they take the value from when you sold the house. This means the FHA will take $72,660.25 leaving you with $53114.75. Let’s not forget those FHA insurance premiums you paid for ten years. That was 1.5% a year times ten years on our $200,000 home equals $3000.00 a year times ten for a total of $30,000.00. WOW, that drops our profit to 23,114.75 for the home. So to the home owner makes about 1% a year and the FHA take the rest of the equity.

Well, the downside is you’re not going to have much money to place down on a larger new home and there is no incentive to pay down the FHA mortgage loan. If you reckon your homes are part of your financial worth, try to find other ways to save your home.

But the positive thing with the FHA, your loans are backed up by the government in case you default. You will need approval of FHA and your total debt cannot exceed 95% of the homes appraised value (may be based on the current conditions instead of how much the house is worth)

If you’re a homeowner facing a foreclosure with no other options, the FHA foreclosures could be a life saver. The Homeowner Rescue bill takes effect October 1st 2008 and many homeowners need help now to save their homes.

Also read: FHA Loan Limits and FHA Guidelines

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This entry was posted on Thursday, February 26th, 2009 at 4:26 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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