How to Qualify For a Kentucky FHA Mortgage Loan 1. Low Down Payment – FHA Mortgage Loans only require a 3.5% down payment. And what m...
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I specialize in Kentucky First Time Homebuyers FHA, VA, USDA & Rural Housing, KHC and Fannie Mae mortgage loans. I have helped over 900 Kentucky families buy their first home and refinance their current mortgage for a lower rate; Kentucky First time buyers $0 down still available with down payment assistance with KHC. Free Mortgage applications same day approvals. Web site is not endorsed by the FHA, VA, USDA govt agency. Text/call 502-905-3708 kentuckyloan@gmail.com NMLS 57916 NMLS ID 1364
Showing posts with label FHA Loans. Show all posts
Showing posts with label FHA Loans. Show all posts
Kentucky FHA Mortgage Information
Louisville Kentucky Mortgage Lender for FHA, VA, KHC, USDA and Rural Housing Kentucky Mortgages: Kentucky FHA Mortgage Information:
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Kentucky FHA loans vs Kentucky USDA Loans for Kentucky Home buyers.
Criteria
|
Loan Type
| |
FHA
|
USDA
| |
|
3.5%
|
0% – None
|
| .85%
|
0.35%
|
|
1.75
|
1.0
|
|
Per County
|
None
|
|
None
|
YES -per county,etc
|
|
None
|
YES
|
| 580 down to 3.5% 500 score with 10% down payment
| no minimum score
|
There are a few other points that put the Kentucky USDA loan at an advantage over the Kentucky FHA mortgage program such as the appraisal value. USDA appraisal value is normally higher than the selling price. If the appraisal value is more than the purchase price, this becomes an additional advantage for borrowers as the USDA will permit you to roll in closing costs.
Essentially the only issues that could be considered as drawbacks of the USDA loan are the restriction of location and the USDA RD income limits. The location must be in a designated rural area with a total population of 20,000. This can be a setback for those who do not want to drive farther to get to work in the city. But buyers should check their location in detail, please click here for the USDA housing map. Many populated locations just outside of the big cities are USDA rural housing approved - locations just outside of Louisville, Ky, Lexington Kentucky, and Northern Kentucky Counties..
Additionally, the USDA ‘s income limit imposed on would-be borrowers is currently set at 115% of the median or average income of the area where your home is to be situated. That means for those who have a higher income than the average in town would have to opt for mortgage loans under the FHA or through a conventional lender if they so decide to live in a rural area.
Regarding the rates as well as the guidelines in qualifying potential borrowers, the FHA and USDA are just about equally matched, and they are currently at historic low rates. However, the USDA, unlike the FHA, allows borrowers to finance the whole purchase price and include any closing expenses as well into the loan.
Lastly, all USDA guaranteed loans have a 30-year fixed rate term. This can be very advantageous mainly when the homeowner eventually starts earning more than the required 115% median, the rate is fixed and even after 10 years only, will practically be insignificant compared to other monthly expenses at this time.
The funding fee in both governments backed programs are incorporated (rolled into) into the overall loan.
Apply for FREE Below for your Kentucky FHA Mortgage loan or USDA Loan:
Joel Lobb (NMLS#57916)Senior Loan Officer
502-905-3708 cell
502-813-2795 fax
502-905-3708 cell
502-813-2795 fax
Fill out my form!
Kentucky FHA Mortgage Loans vs Kentucky USDA Rural Housing Loans Compared
Here are the important points about Kentucky USDA Rural Housing Loans:
- USDA loan are only available in certain counties of Kentucky.
- There are two types of USDA loans available: Direct and Guaranteed.
- 100% financing. No down payment
- USDA will go down to a no score and uses and automated underwriting pre-approval system called GUS-Guarantee Underwriting System. The GUS findings will dictate your loan pre-approval.
- Kentucky USDA Rural Housing Income limits based on county and number of people in household.
- Must be 3 years removed from bankruptcy and foreclosure
- No purchase price limit
- Upfront funding fee of 1% of loan amount paid to RD at closing
- Annual mi fee of .35% paid each month for life of loan.
- Takes on average 30-45 days to close.
- 30 year fixed rate is the only term available and rates are usually comparable to FHA and VA government mortgage insured rates.
- Do not have to be a first time home buyer and can currently own another home if USDA deems the current living situation not suitable.
- Appraisal has to meet FHA minimum standards
- You can buy a home with land on USDA Loans as long as the property does not have any agricultural characteristics or income producing capabilities.
- There is no set max acreage but the appraisal will dictate approval of property by USDA.
- You can only use USDA loans to purchase property or refinance an existing USDA loan
- Pools are okay and homes in a flood zone are okay. This is a recent change
Here are some important facts about Kentucky FHA Loans:
- FHA loans can be made in any county of Kentucky.
- FHA loans require 3.5% down payment
- FHA Mortgage terms are available in 30, 20, 15, 10 year terms.
- Credit score down to 500 are acceptable but subject to investor approval.
- Most lenders will want a 620 score, with some going down to 580 with conditions
- FHA loans are pre-approved using DU, an online automated underwriting system that will dictate your loan approval conditions.
- FHA has max income limits in Kentucky with the maximum being $314,500 for most Kentucky Counties
- There are no income limits on the household for FHA loans
- There is a upfront mi premium of 1.75% and a monthly fee of .85% payable each month.
- If you finance over 90% of the homes value, the monthly mi factor of .85% is for life of loan. If less than 90%, 11 year term for annual mi fee.
- FHA, USDA rates are really comparable on paper, no big difference except for the mi
- FHA requires 3 years out on a short-sale or foreclosure
- FHA requires 2 years out on Chapter 7 and 1 year out on a Chapter 13 with good clean history for the last 12 months with no lates.
- Not required to be a first time home buyer
- Can refinance an existing FHA loan to another without appraisal, income, a processed call FHA streamline refinance
Joel Lobb (NMLS#57916)
Senior Loan Officer
Senior Loan Officer
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant Equal Opportunity Lender. NMLS#57916http://www.
Kentucky FHA Mortgage Guidelines
The credit score requirements for Kentucky FHA home loans:
FHA says on paper in their written guidelines that they will insure a FHA loan down to 500 - 579 with a 10% down payment or 580+ with a 3.5% down payment. However, in the real world of lending in the secondary market, most lenders will not adhere to these guidelines.
Most FHA investors will want a 620 middle credit score, but they're a few that will go by the written FHA guidelines above for credit scores, but very few. Your best bet is to get with a loan officer and get your scores up to at least 580 so you can have a better shot of getting approved and access to more FHA lenders.
Bankruptcy Requirements for Kentucky FHA Home Loans:
FHA states in their published guidelines that if you had a Chapter 7 Bankruptcy, you must wait 2 years from the discharge date to reapply for a FHA insured mortgage loan.
If you had a Chapter 13 Bankruptcy and have a 12 month on-time payment history with the courts, you can potentially get approved for a FHA loan if you get permission from the trustee and qualify with the Chapter 13 payment plan in your debt-to-income ratio. If you have been in the plan for over 12 months, and have a good pay history, you can submit your paperwork for FHA approval.
For example, let's say you have been in the Chapter 13 repayment plan for 3 years and you want to buy a home using FHA financing. You could go ahead and petition the Chapter 13 trustee for approval from the courts to get a home loan. The trustee of the Chapter 13 courts will want to know your new loan payment with the home loan, so make sure you know how much you want to borrow before you apply,.
Collections on Credit Report Requirements for Kentucky FHA Home Loans:
:
If the credit report shows a cumulative balance of $2,000 or more for collection accounts:
The debt(s) must be paid in full prior to or at closing, or
Payment arrangements must be made with the creditor and the monthly payment included in the DTI, or
A monthly payment of 5% of the outstanding balances of each collection must be included in the borrower’s DTI.
Collection accounts of non-borrowing spouses in a community property state must be included in the $2,000 cumulative balance and analyzed as part of the Borrower’s ability to pay all collection accounts. Community property states are Arizona, California, Texas, Washington, and Wisconsin
Short-sale or Foreclosure Guidelines for a Kentucky FHA Loan:
If you have experienced a short-sale or foreclosure, FHA states that you must wait 3 years from the date of the sale to obtain FHA financing again. And important note is this: The waiting period starts not when you were discharged from the home or bankruptcy, the waiting period starts when the home is sold and the deed transferred at the courthouse. This is important to remember because a lot of people think it starts when they vacate the home or when there bankruptcy is discharged if the mortgage was in the bankruptcy, but it does not!!! The date used to end the waiting period starts when the deed is transferred at the courthouse from the owner to back to bank or whomever buyus the home in the default.
Delinquent Federal Debt (Taxes, Student Loans) Kentucky FHA Loan Requirements:
If you have a delinquency with the Federal Government, this could hurt your chances of getting approved for a FHA backed Mortgage Loan. Here is why:
All FHA participants are ran through the CAVIRS Alert System administered by HUD to check to see if the mortgage applicant is delinquent to the Federal Government. This usually arises from an IRS income tax lien, overpayment on a social security claim, or lastly, a defaulted student loan.
A lot of the times FHA borrower don't realize that if they don't pay there Federal backed student loans, they go into default and this will hold you up from getting a FHA loan or possibly they will hold your tax refund.
If you have been delinquent on your student loans, you have to call and get on a 9 month repayment plan with them and they will clear you of your CAVIRS Alert. The payment plan can be as little as 5 or $10 a month, but the important thing is to get started so this will improve your credit rating too along with releasing the liens against you for other federal assistance like tax refunds, social security payments and benefits to name just a few.
I have done many FHA loans in Kentucky where they have rehabbed their student loans if they are backed by Federal government and got them loan after 9 months.
If you happen to have an agreement already worked-out with the IRS or student loan creditors, sometimes we can take that arrangement and get you approved sometime with FHA depending on the lender.
Child Support Obligations Kentucky FHA Loan Requirements:
If the credit report shows a delinquent child support agreement, the FHA Government Underwriter will want to see the current child support agreement and what the monthly payment is so as to make sure they have your debt-to-income ratio figured correctly. You can have a delinquency report of child support on your credit report and still get an FHA loan.
It is okay to be paying child support, a lot of times it shows on a borrower's paystubs, and if so, we simply use that child support obligation to use for debt-to-income ratio qualifying.
Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916
American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364
click here for directions to our office
Text/call: 502-905-3708
Gift Funds & Gift of Equity for Kentucky FHA Mortgage Loan Approval Requirements
Kentucky FHA Gift of Equity and Gift Funds for Down Payment Requirements
Gifts may be provided by:
• Borrower's family member*;• the borrower's employer or labor union;
• a close friend with a clearly defined and documented interest in the borrower;
• a charitable organization;
• a governmental agency or public entity that has a program providing homeownership assistance to:
• low or moderate income families; or
• first-time homebuyers.
*Family member defined as:
• child, foster child, parent, or grandparent; spouse or domestic partner;
• legally adopted son or daughter, including a child who is placed with the borrower by an
authorized agency for legal adoption;
• brother, stepbrother, sister, stepsister;
• uncle or aunt
• son-in-law, daughter-in law, father-in-law, mother in-law, brother-in-law, or sister-in-law of
the borrower.
Guidelines - Personal Gift Funds
• Primary residence 1-4 unit only• Funds may not be used to fulfill mandatory reserve requirements for manually underwritten
files.
• No borrower funds are required for down payment.
• Cash on hand is not an acceptable source of donor funds.
Documentation - Personal Gift Funds
• Gift letter - See Requirements in "Notable Agency Differences" Above• If the gift funds have been verified in the borrower's account, obtain the donor's bank
statement showing the withdrawal and evidence of the deposit into the borrower's account.
• If the gift funds are not verified in the borrower's account, obtain the certified check or
money order or cashier's check or wire transfer or other official check, and a bank statement
showing the withdrawal from the donor's account.
• If the gift funds are paid directly to the settlement agent, verify that the settlement
agent received the funds from the donor for the amount of the gift, and that the funds were from an
acceptable source.
• If the gift funds are being borrowed by the donor and documentation from the bank or other
savings account is not available, have the donor provide written evidence that the funds were
borrowed from an acceptable source, not from a party to the transaction.
Regardless of when gift funds are made available to a borrower, the lender must be able to make a
reasonable determination that the gift funds were not provided by an unacceptable source. This
usually requires a copy of the donor's bank statement.
Guidelines - Gift of Equity
• Family member is ONLY eligible donor for gifts of equity• Limited to 85% LTV unless:
o residence is currently selling-family member's primary residence or
purchasing family member has been renting residence 6 months prior to sales contract date.
Documentation - Gift of Equity
Gift Letter - See Requirements in "Notable Agency Differences" Above
Credit Scores FHA Loans Louisville Kentucky KHC First Time Home Buyer Credit Score
What is the minimum Credit Score Needed to Buy a House and get a Kentucky Mortgage Loan?
5 POPULAR PROGRAMS THAT KENTUCKY HOME BUYERS USE TO PURCHASE THEIR FIRST HOME.
• At least 3%-5% down• Closing costs will vary on which rate you choose and the lender. Typically the higher the rate, the lesser closing costs due to the lender giving you a lender credit back at closing for over par pricing. Also, called a no-closing costs option. You have to weigh the pros and cons to see if it makes sense to forgo the lower rate and lower monthly payment for the higher rate and less closing costs.
Fico scores needed start at 620, but most conventional lenders will want a higher score to qualify for the 3-5% minimum down payment requirements Most buyers using this loan have high credit scores (over 720) and at least 5% down.
The rates are a little higher compared to FHA, VA, or USDA loan but the mortgage insurance is not for life of loan and can be rolled off when you reach 80% equity position in home.Conventional loans require 4-7 years removed from Bankruptcy and foreclosure.Max Conventional loan limits are set at $510,400 for 2020 in Kentucky
If you meet income eligibility requirements and are looking to settle in a rural area, you might qualify for the KY USDA Rural Housing program. The program guarantees qualifying loans, reducing lenders’ risk and encouraging them to offer buyers 100% loans. That means Kentucky home buyers don’t have to put any money down, and even the “upfront fee” (a closing cost for this type of loan) can be rolled into the financing.
Fico scores usually wanted for this program center around 620 range, with most lenders wanting a 640 score so they can obtain an automated approval through GUS. GUS stands for the Guaranteed Underwriting system, and it will dictate your max loan pre-approval based on your income, credit scores, debt to income ratio and assets.
They also allow for a manual underwrite, which states that the max house payment ratios are set at 29% and 41% respectively of your income.
They loan requires no down payment, and the current mortgage insurance is 1% upfront, called a funding fee, and .35% annually for the monthly mi payment. Since they recently reduced their mi requirements, USDA is one of the best options out there for home buyers looking to buy in an rural area
A rural area typically will be any area outside the major cities of Louisville, Lexington, Paducah, Bowling Green, Richmond, Frankfort, and parts of Northern Kentucky .There is a map link below to see the qualifying areas.
Thee is also a max household income limits with most cutoff starting at $86,400 for a family of four, and up to $115,000 for a family of five or more.USDA requires 3 years removed from bankruptcy and foreclosureThere is no max USDA loan limit.
FHA loans are good for home buyers with lower credit scores and no much down, or with down payment assistance grants. FHA will allow for grants, gifts, for their 3.5% minimum investment and will go down to a 580 credit score.
The current mortgage insurance requirements are kinda steep when compared to USDA, VA , but the rates are usually good so it can counteracts the high mi premiums. As I tell borrowers, you will not have the loan for 30 years, so don’t worry too much about the mi premiums.
THe mi premiums are for life of loan like USDA.
FHA requires 2 years removed from bankruptcy and 3 years removed from foreclosure.Maximum FHA loan limits in Kentucky are set around $331,600 and below.
VA loans are for veterans and active duty military personnel. The loan requires no down payment and no monthly mi premiums, saving you on the monthly payment. It does have an funding fee like USDA, but it is higher starting at 2% for first time use, and 3% for second time use. The funding fee is financed into the loan, so it is not something you have to pay upfront out of pocket.
VA loans can be made anywhere, unlike the USDA restrictions, and there is no income household limit and no max loan limits in Kentucky
Most VA lenders I work with will want a 580 credit score, even though VA says in their guidelines there is no minimum score, good luck finding a lender
VA requires 2 years removed from bankruptcy or foreclosure
VA requires 2 years removed from bankruptcy or foreclosure
This type of loan is administered by KHC in the state of Kentucky. They typically have $4500 to $6000 down payment assistance year around, that is in the form of a second mortgage that you pay back over 10 years.
Sometimes they will come to market with other down payment assistance and lower market rates to benefit lower income households with not a lot of money for down payment.KHC offers FHA, VA, USDA, and Conventional loans with their minimum credit scores being set at 620 for all programs. The conventional loan requirements at KHC requires 660 credit score.
The max debt to income ratios are set at 40% and 50% respectively.
Joel Lobb (NMLS#57916)
Senior Loan Officer
Text/call 502-905-3708
Senior Loan Officer
Text/call 502-905-3708
American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant
Equal Opportunity Lender. NMLS#57916
http://www.
Estimated Sale Price: $110,000
• Rate - 3.75%
• APR - 4.854%
• Down payment - $3850.00
• Principal & Interest - $500.20
• Insurance (estimated) - $75
• Taxes - $47.92
• PMI - $74.56
TOTAL PAYMENT INCLUDING
TAXES + INSURANCE:
$697.68 a month!
*Rates effective 01/16/2020, based on 740 FICO score and subject to change. ARP may vary. Loan terms are fixed rate 30 year loans and payment will not rise over the life of the loan. Not all applicants will qualify for advertised terms and conditions, must meet underwriting guidelines and are subject to credit review and approval. This does not constitute a commitment to lend. The disclosed rates, payments, homeowners insurance and mortgage insurance are estimates and may vary according to lender guidelines. Property taxes based on current assessed value with homestead and mortgage exemptions in place. Equal Housing Lender.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant
Equal Opportunity Lender. NMLS#57916
http://www.
Estimated Sale Price: $110,000
• Rate - 3.75%
• APR - 4.854%
• Down payment - $3850.00
• Principal & Interest - $500.20
• Insurance (estimated) - $75
• Taxes - $47.92
• PMI - $74.56
• Rate - 3.75%
• APR - 4.854%
• Down payment - $3850.00
• Principal & Interest - $500.20
• Insurance (estimated) - $75
• Taxes - $47.92
• PMI - $74.56
TOTAL PAYMENT INCLUDING
TAXES + INSURANCE:
$697.68 a month!
TAXES + INSURANCE:
$697.68 a month!
*Rates effective 01/16/2020, based on 740 FICO score and subject to change. ARP may vary. Loan terms are fixed rate 30 year loans and payment will not rise over the life of the loan. Not all applicants will qualify for advertised terms and conditions, must meet underwriting guidelines and are subject to credit review and approval. This does not constitute a commitment to lend. The disclosed rates, payments, homeowners insurance and mortgage insurance are estimates and may vary according to lender guidelines. Property taxes based on current assessed value with homestead and mortgage exemptions in place. Equal Housing Lender.
New Kentucky FHA Mortgage rules starting June 2015
New Kentucky FHA Mortgage rules starting June 2015
Old Rule – Federal debt makes borrower ineligible
New Rule – VERIFIED federal debt makes the borrower ineligible
Part-Time Income
Old Rule – Underwriter discretion allowed when received less than 2 years
New Rule – Two years uninterrupted part-time income is required. Average income over prior 2 years or use 12-month average of hours at the current pay rate if the lender documents an increase in pay rate.
Rental Income on Retained Primary Residence
Old Rule – Rental income may be counted when relocating outside of reasonable commute distance for job and borrower has 25% equity.
New Rule – Rental income may be counted when relocating and the new residence is at least 100 miles from previous residence. If no history of rental income since the last tax filing, borrower must have 25% equity.
Non-taxable income
Old Rule – Gross up using tax rate evidenced on last tax return. If borrower did not file a return, use tax rate of 25%.
New Rule – Gross up using the greater of 15% or actual tax rate. If borrower did not file a tax return, use tax rate of 15%
Installment Debts Less Than 10 Months
Old Rule – May be excluded from ratios. If manual underwrite—may be excluded if debt will not affect ability to pay the mortgage.
New Rule – May be excluded ONLY if—they have cumulative payment of less than or equal to 5% of the borrower’s gross monthly income AND the borrower may not pay the debts down to achieve this percentage.
Multiple FHA Loans
Old Rule – If relocating for employment, borrower may obtain a second FHA loan for a new principal residence if current residence is more than a reasonable commute to new residence.
New Rule – If relocating for employment, the commuting distance between the old residence and new residence must be more than 100 miles.
source
http://www.mortgagetalkingpoints.com/2015/04/7-major-fha-rule-changes-eff-june-15-2015/
Senior Loan Officer
(NMLS#57916)
American Mortgage Solutions, Inc.
800 Stone Creek Pkwy, Ste 7,
Louisville, KY 40223
phone: (502) 905-3708
Fax: (502) 327-9119
Company ID #1364 | MB73346
Fill out my form!
How Can I Pay Off My Mortgage Faster? Basic Concepts-----Louisville Kentucky Mortgage Refinance
How Can I Pay Off My Mortgage Faster? Basic Concepts
A 30 year mortgage, if paid monthly, is about 60% paid off in 24 years. If the borrower makes one extra monthly payment per year on a 30 year mortgage, the entire mortgage is paid off in 24 years. That's six years of vacations, helping your children with college, or bolstering your retirement accounts.
To understand this, let's look at how your mortgage payment is determined. We'll use a $200,000 mortgage at 6.0% for our example.
To understand this, let's look at how your mortgage payment is determined. We'll use a $200,000 mortgage at 6.0% for our example.
- The monthly payment would be $1199.10.
- The interest payment is $200,000 * .06 = $12,000/ 12 months = $1000
- The principal payment would be $199. That's right. After one month you will have paid $1199.10 and your balance will have gone down $199.
- A lower principal balance = a lower amount of interest. Each month the amount of interest paid goes down and the amount of principal paid goes up.
- Anything extra
Call me today for your free refinance mortgage analysis..Rates are low and it is time to refinance
I can be reached locally at 502-905-3708 or email me your questions to kentuckyloan@gmail.com
Kentucky FHA Mortgage Rates | Buying down your mortgage rate, and “2-1 buy-down.”
Kentucky FHA Mortgage--Pay points to buy down rate : What t is the difference
Gina Pogol
October 19th, 2010
October 19th, 2010
If you spend much time reading about Kentucky FHA mortgages, you come across two terms: “Buying down” your mortgage rate, and “2-1 buy-down.” They sound similar, but they are completely different concepts.
Buying down your mortgage rate
This simply means getting a lower interest rate by paying higher fees. For example, you might be able to get a 30-year mortgage with a 5% interest rate at no cost — no loan fees, no appraisal fees, no nothing. Or you might be offered 4.5% with standard fees. But what if you want 3.5%? You’d have to pay extra — that extra cost is in the form of what are called “discount points.” Each point is one percent of the loan amount, and gets you a discount on your mortgage rate. It might cost you several extra discount points to lower your mortgage rate by a full percent.
Should you pay extra to lower your mortgage interest rate?
It depends on how much it costs and how long you expect to keep the mortgage. An Kentucky FHA mortgage calculator can help with this. For example, if you take out a $300,000 mortgage with no points at 4.75% and expect to keep you home for five years, does it make sense to pay points? A point costs you $3,000, and if it lowers your mortgage rate to 4.5%, the difference in your monthly payment is $45 ($1,565 – $1,520). In five years, you would have saved $2,700. It doesn’t make sense to pay $3,000 to save $2,700. So what if you shop around for better Kentucky FHA mortgage rates and find a better lender that will drop your rate to 4.25% for that same $3,000? Your new monthly payment is $1,476, your monthly savings increases to $89, and your savings over five years increases to $5,340. It may then be worth buying your rate down.
The 2-1 buydown
Mortgage rate buydowns are a different story. The FHA 2-1 buydown gets you an interest rate that is lower than the going rate for the first couple of years. So if the market rate on a 30-year mortgage is 4.75%, your interest rate the first year would be 2.75%, the second year it would be 3.75%, and then it would be 4.75% from year three on out. But it’s not like the lender just gives you that sweet deal for nothing. Rate buydowns require that you pay the difference upfront.
Huh?
Yep. Here’s an example of how the cost of a buydown is calculated.
Example: Standard 30-year Kentucky FHA Loan
$100,000 loan amount
8% interest rate = $8,000 a year in interest.
With the 2/1 buy-down the transaction would be as follows:
$100,000 loan amount
1st. year = 6% Interest rate = $6,000 in interest, a savings of $2,000
2nd. year = 7% interest rate = $7,000 in interest, a savings of $1,000
So the lender would charge you $3,000 now for the privilege of saving $3,000 over the next two years.
This is slightly oversimplified because the calculations are a bit more complicated, but it’s pretty much how it works. So unless you can get your seller to pay for it, there is little advantage in the 2-1 buydown for you.
The difference between buying your rate down and a 2-1 buydown is that the 2-1 won’t ever save you more than you pay for it. Buying your rate down can potentially save you more than the cost of the points.
Buying down your mortgage rate
This simply means getting a lower interest rate by paying higher fees. For example, you might be able to get a 30-year mortgage with a 5% interest rate at no cost — no loan fees, no appraisal fees, no nothing. Or you might be offered 4.5% with standard fees. But what if you want 3.5%? You’d have to pay extra — that extra cost is in the form of what are called “discount points.” Each point is one percent of the loan amount, and gets you a discount on your mortgage rate. It might cost you several extra discount points to lower your mortgage rate by a full percent.
Should you pay extra to lower your mortgage interest rate?
It depends on how much it costs and how long you expect to keep the mortgage. An Kentucky FHA mortgage calculator can help with this. For example, if you take out a $300,000 mortgage with no points at 4.75% and expect to keep you home for five years, does it make sense to pay points? A point costs you $3,000, and if it lowers your mortgage rate to 4.5%, the difference in your monthly payment is $45 ($1,565 – $1,520). In five years, you would have saved $2,700. It doesn’t make sense to pay $3,000 to save $2,700. So what if you shop around for better Kentucky FHA mortgage rates and find a better lender that will drop your rate to 4.25% for that same $3,000? Your new monthly payment is $1,476, your monthly savings increases to $89, and your savings over five years increases to $5,340. It may then be worth buying your rate down.
The 2-1 buydown
Mortgage rate buydowns are a different story. The FHA 2-1 buydown gets you an interest rate that is lower than the going rate for the first couple of years. So if the market rate on a 30-year mortgage is 4.75%, your interest rate the first year would be 2.75%, the second year it would be 3.75%, and then it would be 4.75% from year three on out. But it’s not like the lender just gives you that sweet deal for nothing. Rate buydowns require that you pay the difference upfront.
Huh?
Yep. Here’s an example of how the cost of a buydown is calculated.
Example: Standard 30-year Kentucky FHA Loan
$100,000 loan amount
8% interest rate = $8,000 a year in interest.
With the 2/1 buy-down the transaction would be as follows:
$100,000 loan amount
1st. year = 6% Interest rate = $6,000 in interest, a savings of $2,000
2nd. year = 7% interest rate = $7,000 in interest, a savings of $1,000
So the lender would charge you $3,000 now for the privilege of saving $3,000 over the next two years.
This is slightly oversimplified because the calculations are a bit more complicated, but it’s pretty much how it works. So unless you can get your seller to pay for it, there is little advantage in the 2-1 buydown for you.
The difference between buying your rate down and a 2-1 buydown is that the 2-1 won’t ever save you more than you pay for it. Buying your rate down can potentially save you more than the cost of the points.
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