For An Fha Loan

how's it going everybody this is beat

the bush today I'm going to show you how

much home you can afford using an FHA

loan FHA stands for Federal Housing

Administration it's a federal program

that lowers the bar a bit for mortgages

so that more people would qualify for

mortgages now a lot of people cannot

afford a 20% down payment

even on a $250,000 house that amounts to

$50,000 in cash that you have to have if

you don't have that kind of downpayment

and FHA loan could be a way for you to

obtain a home another thing that can

keep you from getting a regular mortgage

is if you have a really low credit score

but not too low you can go down to about

500 but then if you go down to that much

you'll have other requirements if you

have a bankruptcy or got foreclosed upon

there's other requirements that you have

to meet in order to get an FHA loan if

you don't have 20% down in a regular

mortgage you have to pay a thing called

PMI which is private mortgage insurance

it ensures the lender on the portion of

the 20% that you cannot pay now getting

a PMI requires its own approval process

and if you cannot get that that means

you might have to fall back to getting

an FHA loan like right here so this FHA

program is great and all it lowers the

requirements of a typical mortgage but

you got to understand it just doesn't

lower and it you get it for free it does

not come for free you're paying for the

privilege of having lower requirements

so due to all the insurance payments

you're paying to the FHA you're actually

paying more for the same exact home

compared to a person with a better

credit score that is getting it through

a regular mortgage so check out this

really long list of requirements in

order to get approved for an FHA loan

it's understandable why the FHA puts

these kind of requirements in in order

to get approved for a loan because they

are to insure for you they are insuring

against you from defaulting on the loan

if you ever default and you cannot pay

back they will be responsible for that

portion of the loan so let's go through

these requirements and let me just say

that these requirements are not

completely set in stone usually if you

have some reason for something they

would actually let it pass for example

steady employment for two years if you

have some other reason why or you can

prove that it's you know your

is actually really steady without going

through two years and you know they

might let that pass you need a social

security number you need to be in the

United States lawfully you need to be of

legal age now this 3.5% down minimum

depends on your credit score if you have

580 credit score and above you can go

all the way down to 3.5% however if you

have a really really terrible credit

score of all the way down to 500 then

you are required to put in 10% not to

mention that the percent down you put in

affects greatly the insurance that you

have to pay and I'll go over that later

you can only use the FHA loan for

primary residence which means you got to

live in it if you get approved for an

FHA loan you need the property to be

approved by an FHA approver so this

approver needs to be from their

organization the front end ratio which

is just a percentage of your income it's

just how much you can take in order to

pay for the house for the mortgage for

the HOA fee property tax mortgage

insurance homeowner insurance all of

this you can go all the way up to 31

percent but they would allow you to go

all the way up to 40 percent now this is

in contrast to a regular mortgage you

can see in a regular mortgage they kind

of want you to stay at a 28% this extra

3% here on top of the 28% actually helps

you make the mortgage a bit affordable

because they let you stretch your budget

a little bit more but there's the case

of stretching your budget more because

you're using more of your paycheck to

pay for this FHA loan thing the back end

ratio is how much you pay for mortgage

and all your debt including credit card

debt your car payments your student loan

everything added up so let's say you add

up all of these debts you have it cannot

exceed 43 percent of your income and if

you happen to went into bankruptcy you

need to be two years out of bankruptcy

before you can qualify for this loan you

need to be three years out of

foreclosure so if your previous home

somehow you got foreclosed upon got

kicked out and gotta go rent or

something then you have to wait three

years after this foreclosure event

before you can apply for a FHA loan and

get a new

lastly the property must meet minimum

standards okay they have a set of

standards you can't go by like a little

Hut and then you can get a loan on it

they want to be able to sell this thing

if you ever default so it becomes a lot

easier for them to liquidate things it's

kind of like protection on their end

they want things to look good and that

the property is actually worth something

and if it doesn't meet the standards

they want the seller to fix it before

they'll approve the loan and if the

seller is refusing to fix it you have to

put extra money in into an escrow

account which means the escrow account

is you put it with a third party they

hold the money and they make sure you

get this thing fixed and then they will

release that money to the people who

fixed it this is just to make sure that

you are absolutely going to fix this

whatever problem they found and that the

mortgage loan they give you is sound

quite a bit of requirements here and I'd

say this is pretty complex but from here

on I'm just going to try to make it

simpler in terms of how you can

calculate how much you can afford so you

might wonder what this FHA thing is

going to cost you well to start off with

right when you get the loan you have to

pay a lump sum okay it's called an

upfront mortgage insurance premium and

it comes in at 1.75 percent of your

mortgage so if you pay for a $250,000

house if that is your mortgage amount

after the downpayment and stuff then you

have to pay four thousand three hundred

seventy five dollars this amount is give

it to them it's paid and you don't get

it back okay it's not paid into the

mortgage or anything this is this is a

fee you can pay instantly if you have

that kind of money laying around to put

on top of whatever downpayment that you

pay three point five percent ten percent

or whatever or you probably don't have

that kind of money because you're trying

to go for a low downpayment so you're

going to roll this into the mortgage so

what this means is that you can afford a

little bit less okay so it's going to be

you know four thousand dollars less than

what you could normally have afford with

your

income on top of paying a lump sum you

also have to pay for a monthly fee now

this is on top of the interest rate that

you're paying on your mortgage here's a

breakdown of the fees that you have to

pay in percentage so you can see that if

you add one percent interest rate to

your mortgage of say four percent when

you go from 4 percent to 5 percent it's

a big deal it goes something like this

roughly 1.0 5% here and it gets lower

and lower okay over here is the term

years 15 years if you're more than 15

year term you go up here for 625 K loan

if you're more than that okay you go up

here loans it's 95% loan-to-value ratio

if you're more than that then you have

to pay 1.05 what does loan-to-value mean

it means how much loan that you have to

take compared to the value so if you put

in 5% down payment you're going to have

95 percent loan to value and if you only

put in 3.5% down payment you're going to

have a 96.5 loan-to-value ratio which

means you're going to go more so you

have to pay a 1.05 interest rate on top

of the interest rate on your mortgage

let's say you're buying a $500,000 house

30-year mortgage and you're putting a

10% down so 15 years 30 years is more

over here $500,000 house which is less

than 625 so you go this way

loan-to-value is 90% so it's less than

95 so you go this way so your API will

be 0.8% these mortgage insurance

premiums are set by the FHA if you have

a 30-year loan you might be wondering do

you have to pay this point 8 percent for

the entire duration of the 30-year loan

because if you do that's quite

significant well it depends on your loan

to value ratio your initial loan to

about value ratio because your home

could appreciate right and then you can

go hey look my loan to value changed

it's a lot better now because it

increased twice and now your loan to

value is 50 percent so do you have still

have to pay the answer is yes you still

have to pay that insurance premium even

though your home appreciated in value

let's say you pay anything less than 10

percent down payment okay because you're

in this situation where you don't have

that much down payment you put in less

than 10% and you would go okay it's more

than 90% loan to value ratio which means

you have to pay the full term so it's 30

years all 30 years you have to pay that

mortgage insurance premium however if

you can make it to 10% which means you

can go here then you only need to pay

the mortgage in premium for only 11

years which is a lot better 11 years is

a lot better than 30 years so you really

make sense to save more on a down

payment because the tearing here shows

that the more down payment you have the

less you are as a risk to them then that

means the less money you have to pay

right here it's very evident as soon as

you go over to them 10% you're going to

pay a lot less in insurance premiums of

course even if you pay more than 10%

down payment you still got to pay this

initial fee here I realized that not

everyone is going to make the $50,000 us

median household income but the final

numbers are scalable and I'll show you

that over here at the end

taking $50,000 income a year you

multiply this by 28% for the regular

mortgage right not the FHA time get

$14,000 divided by 12 means every single

month you can afford one thousand one

hundred sixty six dollars but under FHA

guidelines you can go up to 31 percent

comfortably 31 percent of $50,000 is

fifteen thousand five hundred dollars

divided by twelve you means every single

month you can pay one thousand two

hundred ninety one dollars now I want to

compare to a regular loan here to show

you how much more is actually costing

you per month to get an FHA loan for the

same exact mortgage now if you have a

credit score of seven hundred and above

at four percent interest rate which is

the regular nowadays for 2016 30 year

fixed mortgage loan on a two hundred

fifty thousand dollar house it will cost

you one thousand one hundred ninety-four

dollars a month which is very similar to

how much you can afford you can think of

it as fifty thousand dollars times five

which is two hundred fifty K that's how

much home you can afford under the

regular loan program the regular

mortgage where you save up 20% for a

mortgage however let's say you have a

credit score of 580 n above you have to

pay the special insurance

Premium here the lump sum and also a

monthly fee of 0.8% here so let's say

your interest rate is 4% so you got to

go 4.8% add it together on a 30-year

mortgage so for a 250k mortgage it's

going to cost you one thousand three

hundred twelve dollars a month you see

how when FHA relaxed this twenty eight

percent to thirty one increases the

amount of money that you can spend on

your mortgage to 1291 this kind of goes

hand-in-hand with the amount that you

have to pay under this new higher

interest rate thing so your increase

here is actually kind of compensates for

the insurance premiums you can think of

this as yes you make the same amount of

money but they're going to take off a

little bit more you can save a little

bit less in order to pay for the premium

which really means you're kind of using

your budget more you don't have as much

free cash flying around you can't use it

to save up things like that lastly let's

say you don't have a fifty thousand

dollar income you have something

different okay anything different let's

say you make some other amount than 50k

which is very likely then you just

calculate thirty one percent of that and

divide it by twelve to figure out what

your monthly payment is okay that you

can afford to pay this comes out to be

1033 for the case of a person earning

$40,000 a year then you just take the

number I did for this one divide it by

one thousand three hundred twelve times

two hundred fifty k equals 196 K so this

guy making forty thousand dollars can

afford a home of 196 K assuming they're

getting a thirty-year interest and

assuming they're they fit in this

bracket where it's about point eight

percent interest you can see here that

if you make less yes you're going to be

able to afford a smaller home however if

you are the same person okay you make

the same amount and you either get a

regular mortgage or an FHA mortgage it's

going to be very similar other than the

fact

you have to pay more you can get

approved for roughly the same size house

provided you can pay the initial lump

sum of the FHA payment and the monthly

insurance premium here is actually

compensated by them relaxing this ratio

that you can use from your income I hope

that wasn't too complicated I hope you

can use this to figure out how much home

you can actually afford don't forget to

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thanks for watching