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MORTGAGE BASICS For the Advanced Salesperson: Understanding FHA Loans Loans insured or guaranteed by the Federal Housing Administration provide a good financing option for borrowers, such as first-time homebuyers, with good credit but little or no money for a downpayment. FHA terms include: 1. Downpayments of 3 percent on the first $25,000; 5 percent on the next $100,000; and 10 percent thereafter. 2. Maximum loan amounts, which vary by area. Check the U.S. Department of Housing and Urban Development site for specific limits in your area. 3. Property must be appraised by an FHA appraiser. 4. No secondary financing. 5. One-time mortgage insurance premium of 2.25 percent of loan, which can be financed as part of the loan. 6. Annual 0.5 percent insurance premium. One hurdle to obtaining FHA insurance for a loan is the HUD/FHA Homebuyer Protection Plan. This plan, which was revised in 1999, was designed to ensure that homes backed by the FHA were in good physical condition. The plan requires that before a property can be approved for an FHA guarantee, an FHA-approved appraiser must make a comprehensive survey of the property’s physical condition. If the appraiser notes significant defects, he or she must recommend a full home inspection. All defects found must be disclosed to potential buyers. This program doesn’t mandate home inspections, but buyers are required to sign a detailed disclosure form explaining why a home inspection can be helpful and how an appraisal and an inspection differ. 5 Questions Borrowers Should Ask 1. How long will the buyer own the property? The shorter the time, the lower points and other closing costs should be. 2. Is there a type of payment schedule that makes buyers feel more comfortable? Most people prefer a fixed rate because they can predict future costs more easily. 3. Does it matter to the buyers who services the loan? It may be more convenient for borrowers to borrow from a local institution they know, although keep in mind that loans can always be sold. 4. Do buyers want to escrow money for insurance or taxes or have want the lender to do it? In some cases, borrowers don’t have a choice, but whether you want to have an imposed savings plan for taxes and insurance or pay it all in one lump sum may depend on your personality and sources of income. 5. Do borrowers want a lender they know, or are they willing to try someone new? Kim Daugherty, Real Estate Checklists and Systems, Gundaker, REALTORS®, Maryland Heights, Mo. What Lenders Need > |
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