An interesting dispute in the United States Bankruptcy Court for the Northern District of Indiana resulted in a March 27, 2007 opinion by Judge Harry C. Dees, Jr. about a borrower’s attempt to transfer ordinance citations, fines and other property-related liabilities to a lender.
The issue was whether a mortgagor’s/borrower’s unilateral execution and recordation of a quit-claim deed effectively transferred the real estate to the mortgagee/lender. Although the case involved residential property, the rules and holding are equally applicable to commercial real estate and business borrowers.
The lesson of Phillips v. City of South Bend, 2007 Bankr. LEXIS 1503 (N.D. Ind. 2007) is: a borrower simply can’t unload its real estate-based problems onto a secured lender without some kind of agreement or consent.
The facts. The City of South Bend pursued a residential property owner for nuisance violations related to property, which was in disrepair and had documented unsanitary conditions in the yard. Potential fines and penalties were around $5,000. Citifinancial held a mortgage on the property. The borrower/mortgagor, in an apparent effort to avoid municipal liability, executed and recorded a quit-claim deed purporting to abandon the property and transfer title to Citifinancial. Citifinancial, however, never “acknowledged transfer of the property” or took “responsibility for maintaining the property.” Id. at 3. Citifinancial “did not accept the transfer” (although it is not entirely clear how Citifinancial manifested that non-acceptance). The borrower did not enter into any kind of written agreement with Citifinancial, and Citifinancial “took no action at all” with regard to the property. Id. at 14. There was no written consent by Citifinancial or any activity demonstrating consent, such as the physical possession of the property. Evidently, Citifinancial simply ignored the quit-claim deed.
Indiana mortgages, generally. Indiana follows the “lien theory” of mortgages. This means that a mortgage creates a lien on property but not title to it. Mortgagees do not have an ownership interest in the real estate. Id. at 15. Title to property cannot be transferred to the mortgagee unless there is a foreclosure and sale (or a deed-in-lieu of foreclosure). Indiana defines “foreclosure” as a legal proceeding that terminates a mortgagor’s interest in property. Id. “The right to possession, use and enjoyment of the mortgaged property, as well as title, remains in the mortgagor, unless otherwise specifically provided, and the mortgage is a mere security for the debt. Id. So, secured lenders holding Indiana mortgages merely have liens as security for their loans.
Transfer is a two-way street. In Phillips, the borrower executed and recorded a quit-claim deed in order to surrender the property, but no foreclosure took place. The Court held that the borrower could not compel the mortgage holder to accept the surrendered, quit-claimed property and that the borrower continued to be the owner of the property, with all the rights and obligations. The City properly enforced its property maintenance codes against the borrower, not the lender, as owner of the property. Id. at 15. The unilateral execution of a quit-claim deed in an effort to surrender the property to mortgage holder, while clever, ultimately accomplished nothing from the standpoint of avoiding liability.
Impact on commercial cases. Phillips impacts the handling of commercial foreclosure cases as well. A corporate borrower in possession of commercial real estate collateral could decide, in an effort to avoid certain liabilities related to the ownership of the land (such as public nuisance fines, utility charges or maybe even real estate taxes), to dump these problems back on a commercial lender simply by quit-claiming the property and surrendering possession. A secured lender may, for a variety of reasons, not want the property, particularly by quit-claim deed, until the property is run through a foreclosure. In that case, according to Phillips, the secured lender should take every possible action to show that it has not acknowledged or accepted transfer of the property or otherwise consented to ownership. Don’t sign any paperwork indicating you are the owner. Avoid physical presence on the premises. Make sure there are no communications with the mortgagor/borrower other than with statements that unequivocally demonstrate you do not want title to the property at that time (unless through a deed-in-lieu of foreclosure with a supporting agreement). That way, if and when you want to liquidate the collateral or become the owner of the property, you can do it on your own terms and avoid the potential liability found in Phillips.
John D. Waller is a partner at the Indianapolis law firm of Wooden & McLaughlin LLP. He publishes the blog Indiana Commercial Foreclosure Law at http://commercialforeclosureblog.typepad.com. John’s phone number is 317-639-6151, and his e-mail address is jwaller@woodmclaw.com.
Article Source: http://EzineArticles.com/?expert=John_Waller
Tuesday, June 12, 2007
Wednesday, April 25, 2007
Think I’m kidding? Just read nearly any newspaper to get an idea of the nonsense being floated about. Some of the latest “solutions” being discussed for these lenders experiencing such high mortgage default rates are government bailouts.
For anyone needing a translation, “government bailout” or “subsidy”, means the feds picking up the tab for corporate foolishness. And since the government has no money except what we taxpayers provide them, guess who really pays?
What that really means is we end up paying for the poor judgment and financial irresponsibility exercised by some mortgage lenders. I mean what else do you call it, when they loan money to folks with credit scores falling off the bottom of the charts, and whose credit history has already demonstrated they are highly likely to default again.
Does this make sense to anyone?
The extent of the problem is finally starting to get the attention it deserves and now everyone is wringing their hands wondering what to do. So here’s a thought – how about the government staying out of it? Let the marketplace sort it out. Yeah, lots of people will suffer, but quite frankly, a majority of them deserve to.
Lets look at the players starting with the so-called “victims”, those borrowers who for whatever reason thought they could get a “free lunch”. Certainly some of them were deceived by the predatory practices of some brokers, but most thought they could get something for nothing.
Think about it, you’ve got people making $60,000 a year going into a $340,000 house. “Oh but we really wanted (translated “deserve”) it and the payments were so low”. Yeah, for a while, then comes the rate adjustment that doubles their payment, and they call foul saying they didn’t know? Come on.
Next are the mortgage brokers and lenders. There’s actually nothing wrong with loaning money at higher rates to higher risk borrowers. However, many of these guys got so greedy with schemes to get a piece of everyone they could, they set the qualifying bar too low. They made two major mistakes. They put together deals that weren’t sustainable over the long term, and they used a spread that didn’t cover the losses that would surely follow.
Last in the line are the wall street traders and investors. Top traders each earn millions every year trading mortgages bundled up and securitized. If fact most of the big firms now have their own mortgage underwriting arm whose sole purpose in life is to feed the trading desks. Again, nothing inherently wrong with this as long as everything is disclosed to potential investors.
Investors are always looking for ever higher returns, so if they ended up going for broke, some of them may be pretty exposed right now. For those who may not have been informed to what extent their bond instruments were comprised of subprime mortgage loans, they’ll end up as collateral damage, but the rest have no excuse.
But everyone seems to have forgotten the never-changing fact that with potential high reward, comes high risk. When it doesn’t work out, tough – get over it.
In this case the fallout will hurt a lot of people, and because this thing is so big and touches so much of our economy, many innocent folks will suffer as well. But look at the alternative. If a bailout happens, nobody has to pay for their naiveté or greed, and thus no learning takes place. And you know what? It’ll happen again.
For anyone needing a translation, “government bailout” or “subsidy”, means the feds picking up the tab for corporate foolishness. And since the government has no money except what we taxpayers provide them, guess who really pays?
What that really means is we end up paying for the poor judgment and financial irresponsibility exercised by some mortgage lenders. I mean what else do you call it, when they loan money to folks with credit scores falling off the bottom of the charts, and whose credit history has already demonstrated they are highly likely to default again.
Does this make sense to anyone?
The extent of the problem is finally starting to get the attention it deserves and now everyone is wringing their hands wondering what to do. So here’s a thought – how about the government staying out of it? Let the marketplace sort it out. Yeah, lots of people will suffer, but quite frankly, a majority of them deserve to.
Lets look at the players starting with the so-called “victims”, those borrowers who for whatever reason thought they could get a “free lunch”. Certainly some of them were deceived by the predatory practices of some brokers, but most thought they could get something for nothing.
Think about it, you’ve got people making $60,000 a year going into a $340,000 house. “Oh but we really wanted (translated “deserve”) it and the payments were so low”. Yeah, for a while, then comes the rate adjustment that doubles their payment, and they call foul saying they didn’t know? Come on.
Next are the mortgage brokers and lenders. There’s actually nothing wrong with loaning money at higher rates to higher risk borrowers. However, many of these guys got so greedy with schemes to get a piece of everyone they could, they set the qualifying bar too low. They made two major mistakes. They put together deals that weren’t sustainable over the long term, and they used a spread that didn’t cover the losses that would surely follow.
Last in the line are the wall street traders and investors. Top traders each earn millions every year trading mortgages bundled up and securitized. If fact most of the big firms now have their own mortgage underwriting arm whose sole purpose in life is to feed the trading desks. Again, nothing inherently wrong with this as long as everything is disclosed to potential investors.
Investors are always looking for ever higher returns, so if they ended up going for broke, some of them may be pretty exposed right now. For those who may not have been informed to what extent their bond instruments were comprised of subprime mortgage loans, they’ll end up as collateral damage, but the rest have no excuse.
But everyone seems to have forgotten the never-changing fact that with potential high reward, comes high risk. When it doesn’t work out, tough – get over it.
In this case the fallout will hurt a lot of people, and because this thing is so big and touches so much of our economy, many innocent folks will suffer as well. But look at the alternative. If a bailout happens, nobody has to pay for their naiveté or greed, and thus no learning takes place. And you know what? It’ll happen again.
Tuesday, April 24, 2007
Applying for Loans
Once you have decided on applying for a loan you should first investigate the money lenders’ market to acquaint yourself with the current interest rate and loan charges. You should check on the internet as well and see if the interest rates are the same as those of the banks in the high street. Be sure that you will be getting the best rates going as this can be a huge saver for you during the life time of the loan.
Once you have your loan it is up to you how you will spend it. You can either take a lump sum or the bank will open a line of credit for you and you can use the money as you need it. if you have not used up all the money by the time the duration of the loan is over you will have to reapply for another loan.
It is a good loan to use if you are in debt and need to consolidate your debts. You can pay them off with this loan and then just have the loan to pay off and be rid of all the debts.
Home equity loans are when you borrow the equity of your home, which is the difference between what is owed on your home and the value of your home. This loan is secured against the home so one should think carefully before taking this loan for anything that is not entirely necessary.
You may have to arrange a wedding for a family member and this could be very costly. The loan would enable you to pay for all the trimmings that you would not otherwise be able to afford.
Shop around at banks and money lenders and watch the media for advertisements for their interest rates and loan charges before making a final decision to take a loan.
Once you have your loan it is up to you how you will spend it. You can either take a lump sum or the bank will open a line of credit for you and you can use the money as you need it. if you have not used up all the money by the time the duration of the loan is over you will have to reapply for another loan.
It is a good loan to use if you are in debt and need to consolidate your debts. You can pay them off with this loan and then just have the loan to pay off and be rid of all the debts.
Home equity loans are when you borrow the equity of your home, which is the difference between what is owed on your home and the value of your home. This loan is secured against the home so one should think carefully before taking this loan for anything that is not entirely necessary.
You may have to arrange a wedding for a family member and this could be very costly. The loan would enable you to pay for all the trimmings that you would not otherwise be able to afford.
Shop around at banks and money lenders and watch the media for advertisements for their interest rates and loan charges before making a final decision to take a loan.
Thursday, April 19, 2007
Mortgages first appeared in the English feudal system and have continually served as a means to obtain land ownership without paying for the total price of the land. The mortgage is essentially a contractual relationship creating an interest in land, but it is not a loan as many people often confuse it. Most mortgage agreements involve a promise to repay a debt, but is not a debt in itself, but rather, is evidence of a debt.
Essentially, the mortgage is a transfer of either a legal or equitable interest in the land on the condition that the interest will be returned when the terms of the contract are performed. If the borrower fulfills all of the obligations of the mortgage contract, the transfer then becomes void and title automatically passes back to the mortgagor.
The principle generally governing what priority a mortgage is usually first in time, first in right, though modifications to this principle can be made in the course of the process. First in time priority generally belongs to the first party to deliver that specific security instrument for recording, though most states will not enforce this general principle if the person attempting to record has actual knowledge of a previously unrecorded claim.
In a minority of states, statutes provide for a true first in time circumstance where the first to record takes priority regardless of knowledge of a previously unrecorded claim. When dealing with the priority of mortgages, it is necessary to check how your particular jurisdiction treats this type of situation.
The priority of a mortgage will often be the difference between payment and non-payment, therefore, a firm understanding of jurisdictional differences is critical in obtaining the strongest legal position.
Due to both the increased use of online mortgage applications and the increased solicitation by online mortgage companies, determining the true priority of all liens on a particular piece of property can be a challenging task. Like mortgages obtained from a mortgagor with a true physical office, online mortgages will generally be held to the first in time first in right principle.
However, like most mortgages, they may also be subject to any leases involving the land. In the event of a forced foreclosure, when lease was executed before a mortgage, the purchaser of the property in the foreclosure auction would still take subject to the lease. Conversely, if a lease is entered into after a mortgage is recorded, the purchaser of the property would take free of the lease.
Specifically, further problems can be encountered when first and second mortgages are applied for close in time to each other, and especially when one of those mortgages was obtained from an online mortgage company.
When faced with potential foreclosure due to financial difficulties, the first step in determining who takes priority when dealing with a combination of leases, first, second and all subsequent mortgages, is to examine where the debt instrument was obtained and, more specifically, when the instrument was effectively recorded.
Because online mortgage companies may lack a physical presence in your particular jurisdiction, it may take a significant amount of time to perfect the recording, if it ever. As long as subsequent mortgagees or lenders record the debt instrument without notice of the online mortgage, they will take priority over the unrecorded online mortgage, especially in ‘race-notice’ statute jurisdictions.
While not all jurisdictions are first in time, first in line (‘race-notice), most states are, and this specific distinction can determine the priority of any online mortgage application. Whether you represent such an online mortgage company or a consumer subjecting his or her property to various liens and mortgages, it is important to accurately understand the method of record perfection and its relation to establishing priority of a claim.
An attorney experienced in real estate and borrowing transactions can be an invaluable tool in determining your rights as a consumer or company attempting to establish the order of lien priorities.
This article was written by Nick Delaunt, who writes select pieces about real estate law for Goldstein and Clegg, LLC.
Article Source: http://EzineArticles.com/?expert=Nicholas_Deleault
Essentially, the mortgage is a transfer of either a legal or equitable interest in the land on the condition that the interest will be returned when the terms of the contract are performed. If the borrower fulfills all of the obligations of the mortgage contract, the transfer then becomes void and title automatically passes back to the mortgagor.
The principle generally governing what priority a mortgage is usually first in time, first in right, though modifications to this principle can be made in the course of the process. First in time priority generally belongs to the first party to deliver that specific security instrument for recording, though most states will not enforce this general principle if the person attempting to record has actual knowledge of a previously unrecorded claim.
In a minority of states, statutes provide for a true first in time circumstance where the first to record takes priority regardless of knowledge of a previously unrecorded claim. When dealing with the priority of mortgages, it is necessary to check how your particular jurisdiction treats this type of situation.
The priority of a mortgage will often be the difference between payment and non-payment, therefore, a firm understanding of jurisdictional differences is critical in obtaining the strongest legal position.
Due to both the increased use of online mortgage applications and the increased solicitation by online mortgage companies, determining the true priority of all liens on a particular piece of property can be a challenging task. Like mortgages obtained from a mortgagor with a true physical office, online mortgages will generally be held to the first in time first in right principle.
However, like most mortgages, they may also be subject to any leases involving the land. In the event of a forced foreclosure, when lease was executed before a mortgage, the purchaser of the property in the foreclosure auction would still take subject to the lease. Conversely, if a lease is entered into after a mortgage is recorded, the purchaser of the property would take free of the lease.
Specifically, further problems can be encountered when first and second mortgages are applied for close in time to each other, and especially when one of those mortgages was obtained from an online mortgage company.
When faced with potential foreclosure due to financial difficulties, the first step in determining who takes priority when dealing with a combination of leases, first, second and all subsequent mortgages, is to examine where the debt instrument was obtained and, more specifically, when the instrument was effectively recorded.
Because online mortgage companies may lack a physical presence in your particular jurisdiction, it may take a significant amount of time to perfect the recording, if it ever. As long as subsequent mortgagees or lenders record the debt instrument without notice of the online mortgage, they will take priority over the unrecorded online mortgage, especially in ‘race-notice’ statute jurisdictions.
While not all jurisdictions are first in time, first in line (‘race-notice), most states are, and this specific distinction can determine the priority of any online mortgage application. Whether you represent such an online mortgage company or a consumer subjecting his or her property to various liens and mortgages, it is important to accurately understand the method of record perfection and its relation to establishing priority of a claim.
An attorney experienced in real estate and borrowing transactions can be an invaluable tool in determining your rights as a consumer or company attempting to establish the order of lien priorities.
This article was written by Nick Delaunt, who writes select pieces about real estate law for Goldstein and Clegg, LLC.
Article Source: http://EzineArticles.com/?expert=Nicholas_Deleault
Monday, April 16, 2007
Bad or no credit mortgages
Bad credit mortgages exist. They may be harder to find then those for people with good credit, but they are available if you know where to look. The internet is the best source for finding these mortgages. The internet will also give you the most choices of lenders form which to choose.
Determining what makes a person become labelled a bad credit borrower is really a matter of a few factors. Lenders will consider their credit score. They are looking for the highest score possible or as close to the highest score. They will also look at the amount of the loan requested and how it compares to the value of the home.
They are wanting a home that is worth more than or equal to the amount being requested. Next they consider the person debt to income ratio. This will tell them if the borrower can afford the loan.
Once all of this information is tabulated the lender gets a clear picture of the borrowers financial state. They should be able to determine how risky this loan would be and they will base their decision upon it.
Once you have determined you are considered a bad credit borrower then you should start looking specifically for bad credit mortgages. You will want to shop around. You will want to read all the terms and conditions. You should understand that a bad credit mortgage is very costly and you will end up paying more interest and fees than with a traditional loan.
Make sure to shop around. There are plenty of good lenders, but there are also those who will take advantage of the vulnerable position you are in. Watch out for excessive fees and extremely high interest rates, which are signals of a bad lender. As long as you shop around, though, you should have no problems avoiding bad lenders.
It is also a very good idea to approach a number of large and reputable mortgage brokers. Such brokers have access to a large number of lenders that are not available on the high street to general public, but only through intermediaries and brokers.
Many such lenders specialise in finance for people that have a less than perfect credit history. These lenders are ideal. Just make sure you find out upfront how much the broker is going to charge.
There is a way to benefit from a bad credit mortgage. Once you obtain the mortgage and you make regular, steady payments you will be building credit. You will be able to establish a better credit rating and possibly refinance for a better loan. Using a bad credit mortgage to your advantage is a great thing that can really help you out in the long run.
Bad credit mortgages should be seen as a way to rebuild credit. They may cost a lot upfront, but in the end they are well worth it. For many people a bad credit mortgage is the only way they can afford to buy a home. It is the only way they can get funding, so they use it to their advantage, build up a good payment history and then try for a cheaper, traditional loan down the road.
James Copper writes on all areas of finance and investment. He works for Any Loans who source bad credit mortgages and bad credit loans for people with credit problems.
Article Source: http://EzineArticles.com/?expert=James_Copper
Read more: http://merchantsaccount.com
Determining what makes a person become labelled a bad credit borrower is really a matter of a few factors. Lenders will consider their credit score. They are looking for the highest score possible or as close to the highest score. They will also look at the amount of the loan requested and how it compares to the value of the home.
They are wanting a home that is worth more than or equal to the amount being requested. Next they consider the person debt to income ratio. This will tell them if the borrower can afford the loan.
Once all of this information is tabulated the lender gets a clear picture of the borrowers financial state. They should be able to determine how risky this loan would be and they will base their decision upon it.
Once you have determined you are considered a bad credit borrower then you should start looking specifically for bad credit mortgages. You will want to shop around. You will want to read all the terms and conditions. You should understand that a bad credit mortgage is very costly and you will end up paying more interest and fees than with a traditional loan.
Make sure to shop around. There are plenty of good lenders, but there are also those who will take advantage of the vulnerable position you are in. Watch out for excessive fees and extremely high interest rates, which are signals of a bad lender. As long as you shop around, though, you should have no problems avoiding bad lenders.
It is also a very good idea to approach a number of large and reputable mortgage brokers. Such brokers have access to a large number of lenders that are not available on the high street to general public, but only through intermediaries and brokers.
Many such lenders specialise in finance for people that have a less than perfect credit history. These lenders are ideal. Just make sure you find out upfront how much the broker is going to charge.
There is a way to benefit from a bad credit mortgage. Once you obtain the mortgage and you make regular, steady payments you will be building credit. You will be able to establish a better credit rating and possibly refinance for a better loan. Using a bad credit mortgage to your advantage is a great thing that can really help you out in the long run.
Bad credit mortgages should be seen as a way to rebuild credit. They may cost a lot upfront, but in the end they are well worth it. For many people a bad credit mortgage is the only way they can afford to buy a home. It is the only way they can get funding, so they use it to their advantage, build up a good payment history and then try for a cheaper, traditional loan down the road.
James Copper writes on all areas of finance and investment. He works for Any Loans who source bad credit mortgages and bad credit loans for people with credit problems.
Article Source: http://EzineArticles.com/?expert=James_Copper
Read more: http://merchantsaccount.com
Saturday, April 14, 2007
Mortgage
If you are looking for a mortgage, it is important to know what you are looking for, and where to find the right mortgage for you. You should spend time to find the mortgage with the most affordable repayment terms for your financial situation. The rates offered for a mortgage will differ depending on the state you reside in. The rate for a mortgage will also differ when comparing them within the same state.When looking for a mortgage, it is best to decide between either a fixed rate mortgage, or an adjustable rate mortgage.
Either of these two types of mortgages can affect how much you pay back to the mortgage lender. With an adjustable rate mortgage, the amount you pay will depend on the interest rate, and how stable the economy might be. This amount can be either a higher or lower rate depending on what is happening in the financial sector. Keep in mind that if the economy is doing poorly or is well off, this will be reflected in the amount you pay back as well.
A fixed mortgage will remain at the same interest rate throughout the life of the mortgage loan. This might seem like a good idea if you are expecting sudden changes within the economy, affecting the interest rates. However, in the cases when the interest rates drop, and the rate you are paying remains high and the same, then a fixed rate mortgage might not be your best idea after all.Overall, the Internet is by far the best place to research the different mortgage rates available to anyone wanting to buy a home. The great thing about using the Internet is that you have a choice of any lender, and are not at the mercy of only your local bank. In this way, you are able to spend time researching the best mortgage for you.
By: Marsha Brown
Either of these two types of mortgages can affect how much you pay back to the mortgage lender. With an adjustable rate mortgage, the amount you pay will depend on the interest rate, and how stable the economy might be. This amount can be either a higher or lower rate depending on what is happening in the financial sector. Keep in mind that if the economy is doing poorly or is well off, this will be reflected in the amount you pay back as well.
A fixed mortgage will remain at the same interest rate throughout the life of the mortgage loan. This might seem like a good idea if you are expecting sudden changes within the economy, affecting the interest rates. However, in the cases when the interest rates drop, and the rate you are paying remains high and the same, then a fixed rate mortgage might not be your best idea after all.Overall, the Internet is by far the best place to research the different mortgage rates available to anyone wanting to buy a home. The great thing about using the Internet is that you have a choice of any lender, and are not at the mercy of only your local bank. In this way, you are able to spend time researching the best mortgage for you.
By: Marsha Brown
FHA Loans for first-time buyers
If you have little or no money for a down payment, bad or no credit and too many bills, an FHA loan could be what you need to buy a house.
The Federal Housing Administration, a part of the Department of Housing and Urban Development, was created 70 years ago to help first-time buyers, especially low-to-moderate income families and minorities, get the financing they need.
You can apply for an FHA-backed loan from most banks and mortgage companies. Just click here to find all of the FHA in your area.
Since repayment is guaranteed by the federal government, the lender knows it will not lose money on the deal. That allows the bank or mortgage company to offer competitive rates on a loan that's easier to qualify for than a conventional home loan.
FHA loans aren't as popular as the once were, primarily because the limits on how much you can borrow didn't keep up with soaring home prices.
As a result, the FHA guaranteed just 425,000 purchases last year, down from 1.3 million homes in 2003. The decline is even more dramatic in states with the highest home prices. Only 4,443 Californians took out FHA loans last year, down from 100,000 in 2003.
But with a wave of foreclosures making alternatives such as subprime loans and 100% financing more difficult to obtain, every first-time buyer should at least consider an FHA loan.
Here are the ways you could benefit from the government's help:
Benefit 1. You don't need a big down payment and your lender can help you get it
An FHA mortgage requires only a 3% down payment -- that's $30 for every $1,000 you borrow.
Don't have it. No problem. It can be a gift from a relative, friend or an organization that provides financial assistance.
The FHA works with down payment assistance programs, more popularly known as DAPs. They can help you get the down payment money you need at little or no cost. Your lender will be glad to explain how they work.
None of that is possible when you apply for a conventional loan. Lenders want the down payment to come out of your pocket so you've got some skin in the game and are less likely to default.
Benefit 2. Your credit doesn't have to be perfect
Your credit score doesn't matter because the FHA doesn't use them.
More than 36 factors go into calculating your credit score, including how much credit you have and how often you apply for credit. The FHA doesn't care about all of that.
What it does care about is a record of paying your bills, and paying them on time, for at least the past two years. It will overlook minor lapses on your credit history if there's a reasonable excuse such as losing a job or serious illness. But your bill-paying prowess is a critical factor for every application.
In the end, the FHA does not have a strict set of rules that determine who gets a mortgage and who doesn't. An underwriter at the bank, who knows all of the federal rules and regulations governing the FHA program, uses a computer program to analyze your finances and make the call.
There are things the FHA will not overlook. If you've:
Declared bankruptcy, you must wait two years from the date of discharge and have re-established good credit before you can apply.
Lost a home through foreclosure, you must wait three years and have a clean credit history during that time.
Benefit 3. You can have more debt
Your debt-to-income ratio can be considerably higher for an FHA loan than a conventional loan.
Add your total mortgage payment (principal, interest, taxes, hazard insurance, mortgage insurance and homeowner's dues, if they apply) to regular monthly obligations, such as credit card debt, auto loans, student loans or court-ordered payments like child support or alimony. (Utilities, food, clothing and so forth are not factored in). Then you divide this total by your monthly income, which is the before-tax income of those making the payments.
You can qualify for an FHA loan if your monthly debt payments are no more than 41% of your income. For most conventional loans it can't be more than 36%.
Benefit 4. There are many different types of mortgages to choose from
The FHA offers 15- or 30-year fixed-rate loans and 1-year, 3-year, 5-year, 7-year and 10-year adjustable-rate mortgages. (Dangerous loans such as interest-only mortgages and option ARMS are not available.)
The FHA also offers special programs that require very low payments during the first couple of years of the mortgage the Growing Equity Mortgage and the Graduated Mortgage Payment programs.
The growing equity mortgages, often referred to as GEMs, allow homeowners to make small payments during the first few years and then increase monthly payments over time.
The graduated mortgage payment program is available to people who have good reason to expect their incomes will grow over the first five to 10 years of the loan, allowing them to buy prior to being able to make full payments. Payments can increase during the first 10 years of the loan.
Benefit 5. Competitive rates.
The interest rate will depend on your credit history, with the best rates given to those with the best record of paying their bills and earning a steady income.
But in general, you can expect an FHA loan to cost no more than one-eighth of a percentage point more than any conventional loan you might qualify for.
An FHA loan is almost guaranteed to be cheaper than a subprime loan or option ARM. That's why it's critical to seek an FHA loan before accepting such a high-cost mortgage.
There are two disadvantages to FHA loans that you should be aware of before you apply:
Disadvantage 1. Limits on how much you can borrow
The maximum amount you're allowed to borrow depends on where you live. You can get a loan for as much as $362,790 in high-cost cities, such as New York, Los Angeles or Seattle, but the limit for what HUD considers "standard areas" tops out at $200,160.
Those buying in Hawaii get a 50% increase on the lending limit if the home is located on Maui or in Honolulu, and they can get a somewhat higher loan cap in other parts of the islands.
Disadvantage 2. Pricey mortgage insurance.
If you put less than 20% down on your house and most buyers with FHA mortgages do you will have to pay mortgage insurance.
You'd have to buy it if you took out a conventional mortgage, too. And the annual cost is about the same -- 0.5% of the loan, usually broken into 12 monthly payments added to your mortgage statement.
But the FHA also charges an upfront insurance premium totaling 1.5% of your mortgage amount, and it is due at closing. While that amount can be added to your loan amount, it's still an extra charge.
You must continue this coverage until you've paid off 22% of the principal. Conventional loans allow you to drop mortgage insurance as soon as you hold 20% of your home's equity the difference between what the home is worth and how much you owe on your loan. That can include any appreciation in you home's value, not just paying down the debt.
Despite those drawbacks, FHA loans have helped thousands of people buy their first home. Could it help you?
By Carolyn Siegel
The Federal Housing Administration, a part of the Department of Housing and Urban Development, was created 70 years ago to help first-time buyers, especially low-to-moderate income families and minorities, get the financing they need.
You can apply for an FHA-backed loan from most banks and mortgage companies. Just click here to find all of the FHA in your area.
Since repayment is guaranteed by the federal government, the lender knows it will not lose money on the deal. That allows the bank or mortgage company to offer competitive rates on a loan that's easier to qualify for than a conventional home loan.
FHA loans aren't as popular as the once were, primarily because the limits on how much you can borrow didn't keep up with soaring home prices.
As a result, the FHA guaranteed just 425,000 purchases last year, down from 1.3 million homes in 2003. The decline is even more dramatic in states with the highest home prices. Only 4,443 Californians took out FHA loans last year, down from 100,000 in 2003.
But with a wave of foreclosures making alternatives such as subprime loans and 100% financing more difficult to obtain, every first-time buyer should at least consider an FHA loan.
Here are the ways you could benefit from the government's help:
Benefit 1. You don't need a big down payment and your lender can help you get it
An FHA mortgage requires only a 3% down payment -- that's $30 for every $1,000 you borrow.
Don't have it. No problem. It can be a gift from a relative, friend or an organization that provides financial assistance.
The FHA works with down payment assistance programs, more popularly known as DAPs. They can help you get the down payment money you need at little or no cost. Your lender will be glad to explain how they work.
None of that is possible when you apply for a conventional loan. Lenders want the down payment to come out of your pocket so you've got some skin in the game and are less likely to default.
Benefit 2. Your credit doesn't have to be perfect
Your credit score doesn't matter because the FHA doesn't use them.
More than 36 factors go into calculating your credit score, including how much credit you have and how often you apply for credit. The FHA doesn't care about all of that.
What it does care about is a record of paying your bills, and paying them on time, for at least the past two years. It will overlook minor lapses on your credit history if there's a reasonable excuse such as losing a job or serious illness. But your bill-paying prowess is a critical factor for every application.
In the end, the FHA does not have a strict set of rules that determine who gets a mortgage and who doesn't. An underwriter at the bank, who knows all of the federal rules and regulations governing the FHA program, uses a computer program to analyze your finances and make the call.
There are things the FHA will not overlook. If you've:
Declared bankruptcy, you must wait two years from the date of discharge and have re-established good credit before you can apply.
Lost a home through foreclosure, you must wait three years and have a clean credit history during that time.
Benefit 3. You can have more debt
Your debt-to-income ratio can be considerably higher for an FHA loan than a conventional loan.
Add your total mortgage payment (principal, interest, taxes, hazard insurance, mortgage insurance and homeowner's dues, if they apply) to regular monthly obligations, such as credit card debt, auto loans, student loans or court-ordered payments like child support or alimony. (Utilities, food, clothing and so forth are not factored in). Then you divide this total by your monthly income, which is the before-tax income of those making the payments.
You can qualify for an FHA loan if your monthly debt payments are no more than 41% of your income. For most conventional loans it can't be more than 36%.
Benefit 4. There are many different types of mortgages to choose from
The FHA offers 15- or 30-year fixed-rate loans and 1-year, 3-year, 5-year, 7-year and 10-year adjustable-rate mortgages. (Dangerous loans such as interest-only mortgages and option ARMS are not available.)
The FHA also offers special programs that require very low payments during the first couple of years of the mortgage the Growing Equity Mortgage and the Graduated Mortgage Payment programs.
The growing equity mortgages, often referred to as GEMs, allow homeowners to make small payments during the first few years and then increase monthly payments over time.
The graduated mortgage payment program is available to people who have good reason to expect their incomes will grow over the first five to 10 years of the loan, allowing them to buy prior to being able to make full payments. Payments can increase during the first 10 years of the loan.
Benefit 5. Competitive rates.
The interest rate will depend on your credit history, with the best rates given to those with the best record of paying their bills and earning a steady income.
But in general, you can expect an FHA loan to cost no more than one-eighth of a percentage point more than any conventional loan you might qualify for.
An FHA loan is almost guaranteed to be cheaper than a subprime loan or option ARM. That's why it's critical to seek an FHA loan before accepting such a high-cost mortgage.
There are two disadvantages to FHA loans that you should be aware of before you apply:
Disadvantage 1. Limits on how much you can borrow
The maximum amount you're allowed to borrow depends on where you live. You can get a loan for as much as $362,790 in high-cost cities, such as New York, Los Angeles or Seattle, but the limit for what HUD considers "standard areas" tops out at $200,160.
Those buying in Hawaii get a 50% increase on the lending limit if the home is located on Maui or in Honolulu, and they can get a somewhat higher loan cap in other parts of the islands.
Disadvantage 2. Pricey mortgage insurance.
If you put less than 20% down on your house and most buyers with FHA mortgages do you will have to pay mortgage insurance.
You'd have to buy it if you took out a conventional mortgage, too. And the annual cost is about the same -- 0.5% of the loan, usually broken into 12 monthly payments added to your mortgage statement.
But the FHA also charges an upfront insurance premium totaling 1.5% of your mortgage amount, and it is due at closing. While that amount can be added to your loan amount, it's still an extra charge.
You must continue this coverage until you've paid off 22% of the principal. Conventional loans allow you to drop mortgage insurance as soon as you hold 20% of your home's equity the difference between what the home is worth and how much you owe on your loan. That can include any appreciation in you home's value, not just paying down the debt.
Despite those drawbacks, FHA loans have helped thousands of people buy their first home. Could it help you?
By Carolyn Siegel
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