2019 Best home mortgage loan options


What is your best mortgage option? 

The one you get approved for.  All kidding aside, there is a lot of truth to this.  You can read online, apply at a lender with an option or two, or even go to your local bank.  But every single one of these could literally tell you no, or even worse, put you in the wrong type of loan!  And not because you are so bad, just because they don’t have any unique, out of the box options, or the right product for you.

1) FHA

Don’t count out an FHA loan.  They have a higher debt to income limit generally than does a conventional loan. They have a higher loan to value ratio for refinances than does conventional.  They have an option for citizens, non-citizens, even non-resident aliens, more options than conventional in general.  They allow lower credit scores than conventional and don’t penalize the mortgage insurance premium by the borrower’s credit score.  This can lead to real savings. Time to take another look at FHA!

2) Bank statements for self employed individuals

Bank statements can be used instead of traditional tax returns to prove income.  This program is available from a number of non-traditional lenders.  This allows a self employed borrower to show 1, 12, or 24 months of business (or in some cases personal) bank statements to prove deposit income.  This could help a heavy gross sales, but low net sales (after expenses), client to still qualify for a loan.  Expect a little higher rate, but it’s better than not getting a loan.  Stated income is back? It’s now bank statements

3) Debt Service Coverage Ratio

Commonly used in commercial lending, this is a simple formula for income producing properties (AKA rentals) where the customer’s other assets and liabilities are ignored and the income of the property is the primary consideration of the loan’s ability to be repaid.  The cash flow of that particular property is the main consideration, and that cash flow is based solely on the rental income versus the PITIA payment.  Rental properties – Commercial loans or something even better?

4) Home improvement all in one loan

Whether it’s FHA or Conventional, the home improvement loan market is booming.  Many customers don’t know why this is better than a simple cash out mortgage refinance, or financing home improvements with a second mortgage or even a separate type of loan.  First of all, all in one can save you money on a lower rate and one payment (instead of 2 or more).  A “cash out” refinance also costs more than a home improvement mortgage loan.  It also makes the equity position simple, I owe this much on my house, not give me a minute and let me add it all up.

But the biggest reason of all, even bigger than the convenience of one payment, is the fact that this type of mortgage uses “future value.”  What is future value?  With the quote for the repairs from a licensed contractor in hand, the appraiser goes out and literally says that after these repairs the home will be worth that amount.  This will allow you to take advantage of that increased equity from day one.  Last of all, the conventional option even allows you to do this with a rental property.  While not for fix and flip transactions, it’s more for fix and rent investment properties, this could literally be a game changer.   Stop paying higher rates, points, etc., and get a conventional home improvement mortgage loan.  Remodel or rehab loan?

Wrapping it all up

What does all of this mean to you?  You are looking for a mortgage.  Go where there’s more than a handful of options.  Go where your unique circumstances are taken into consideration and may have a niche loan product answer.   To get started

Time to take another look at FHA!

FHA home mortgage loans have been around for a long time and seem to have garnered a bad name along the way.  “Too expensive,” “you pay for mortgage insurance twice,” “sellers don’t like them,” and “too hard to get,” are just some of the many reasons I regularly hear to avoid them.

When I address these issues, please do not misunderstand that I am saying FHA is the only or the best option.  Every single client is different, and FHA may not be the best option for you.  But to rule it out is to miss a huge opportunity to finance far more people, maybe it’s just right for you!

Reasons to consider FHA for an owner occupied home mortgage loan:

  1. FHA could be the most flexible on the borrower.  You don’t have to be a veteran, citizen, nor a legal resident to get an FHA loan!
  2. FHA could be for the lowest credit score available with lower scores manually underwritten and allowing for more borrowers to qualify.
  3. FHA is a great low money down option.  Most borrowers will qualify for a 3.5% minimum down payment.  That down payment can even be gifted by a relative.
  4. FHA may allow the highest debt to income.  Without revealing specific guidelines, the DTI for a borrower can meet or exceed 50% in some cases and still pass.  This is by far the most flexible option available.
  5. FHA has low mortgage insurance.  Some people point to the fact that a large portion of the MI is paid up front (or added to the loan amount).  However, that is actually better for the borrower’s ongoing payments as they are able to finance that initial portion over up to a 30 year term, while at the same time, they are able to lower their monthly portion of that payment down to a lower amount than a similar conventional loan.   You could think of the initial amount as “pay to play,” or even like discount points in the interest rate.  Every borrower gets to pay up front to get a lower per month amount only with FHA.  In addition, MI is not based on credit score, so it favors lower credit score borrowers.   They essentially pay the same as a borrower with a higher credit score.
  6. FHA is stringent on the appraisal and the condition of the home.  I have seen borrowers protected in many ways by opting for an FHA loan.  Simply put, FHA lending wants to make sure that the borrower gets into a home that does not have ongoing deferred maintenance when they move in.  Even wells and septic systems have been checked as part of the FHA approval process, protecting the borrower.   If the seller does not want to meet the FHA requirements, it may simply mean that they know of a defect (and should be addressing it in the sale contract and disclosures) that may not pass a conventional appraisal and loan requirements either.
  7. FHA may allow a larger refinance amount than many other types of loans.  Currently FHA allows a refinance back to the original loan amount (or 97.75% loan to value of the appraised amount) with no cash out and up to 85% LTV with cash out.  This exceeds the amount offered by conventional refinances.
  8. FHA may allow a borrower with no credit score to enter the home ownership market.  There are alternative credit options that a borrower can use to replace traditional credit with an FHA loan.
  9. FHA allows a 3-4 unit owner occupied purchase much easier than a conventional (with less down payment required).
  10. FHA allows sweat equity on a new construction.  This means the borrower can paint, do other labor intensive work, etc. and receive that as a credit towards their down payment.  In other words, the borrower’s labor on their construction can reduce the required down payment.

In the interest of being fair, there are some drawbacks to the FHA loan.  Some say that MI lasts forever.  That is not quite true, depending on the initial amount of down payment, it can last up to 11 years.  This can be a very large factor if you have 20% down, then an FHA may simply not be for you, since you can avoid PMI completely in the conventional world, but not in FHA.  However, in any other situation, there are many factors to consider in weighing whether this should matter to you as a borrower.  One factor is how long you plan to stay in the home.  If you are just staying an average 3-5 years, there is no reason to see the lower MI with FHA as an obstacle.  If you are planning to refinance later due to home appreciation or for another reason, you can plan to get out of the 11 years of mortgage insurance.  Last, but not least, you might consider the amount of MI versus a comparable conventional loan and how long it would take to pay down the same amount in both loans.  If FHA offers a slightly better rate and a lower monthly MI, all of those factors have to be considered in a comparison to see which one pays off better for the time period you plan to be in the home.

The moral of the story?  Don’t count out FHA, it’s still a great program for a lot of people, maybe you too.   For an analysis of your unique situation: Corey Vandenberg