1) What is the FHA and an FHA Loan?
FHA stands for Federal Housing Administration, the largest mortgage insurer in the world. The FHA provides over $1.3 trillion in mortgage insurance on mortgages for Single Family homes, Multifamily properties, and Healthcare facilities. The FHA program has a public purpose obligation to provide mortgage insurance to American families who choose FHA to meet their homeownership needs.
FHA’s single family mortgage insurance program was created in 1934 to provide access to safe, affordable mortgage financing for American families. FHA does not lend money to homeowners. Instead, FHA insures qualified loans made by private lending institutions. Since 1934 FHA has made the dream of homeownership a reality for millions of American families.
Qualifying Factors include:
By meeting specific required criteria, FHA loans can be provided for as little as 3.5% down.
2) What is a Conventional Loan?
A Conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the FHA and the department of Veteran Affairs (VA). It is typically fixed in it’s terms and rate.
Generally, conventional loans require PMI when you put down less than 20 percent. The most common way to pay for PMI is a monthly premium, added to your monthly mortgage payment. Most lenders offer conventional loans with PMI for down payments ranging from 5 percent to 15 percent.
Mortgages can be defined as either government-backed or conventional. Government agencies like the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) insure home loans, which are made by private lenders. This insurance is paid for by fees collected from mortgage borrowers.
Mortgages not guaranteed or insured by these agencies are known as conventional home loans. They include:
About half of all conventional loans are called “conforming” mortgages, because they conform to guidelines established by Fannie Mae and Freddie Mac. These two government-sponsored enterprises (GSEs) buy mortgages from lenders and sell them to investors. Their purpose is to make mortgages more widely available. All conforming mortgages are also conventional mortgages.
Loans that do not conform to GSE guidelines are referred to as “non-conforming” home loans. Non-conforming loans that are larger than loan limits set by the GSEs are often referred to as “jumbo” mortgages. All non-conforming mortgages are also conventional mortgages.
3) VA Loans:
Since its establishment in 1944, the VA home loan guarantee program has helped millions of veterans purchase and maintain homes. This program is a vital homeownership tool that provides veterans with a centralized, affordable, and accessible method of purchasing homes as a benefit for their service to our nation.
Currently, VA limits the fees which a veteran can pay. While this is designed to protect veteran purchasers, it places them at a disadvantage in multiple bid situations or when buying REOs. The National Association of Realtors is working to ensure veterans are not paying unnecessary fees, while ensuring they are able to purchase the home they wish.
4) Mortgage Financing:
In a typical year, most buyers take out a mortgage to finance their home purchase, most commonly 30-year, fixed-rate financing using a conforming loan. That’s a loan that’s packaged into a security by Fannie Mae or Freddie Mac and sold to investors on Wall Street. The two secondary mortgage market companies guarantee the securities, making them attractive to investors all around the world. Many other buyers use financing backed directly by the federal government through FHA, the U.S. Department of Veterans Affairs, or the Rural Housing Service, a division of the U.S. Department of Agriculture. Jumbo loans, which are loans outside the conforming loan limit, are the largest type of privately funded, privately insured mortgages. Many lenders also make loans underwritten on a proprietary basis and held in their own portfolio to help borrowers who don’t fit into standardized underwriting boxes but who represent reasonable credit risks.
Private mortgage insurance, also called PMI, is a type of mortgage insurance you might be required to pay for if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender—not you—if you stop making payments on your loan.
6) What is a home inspection and why is it necessary in the home buying process?
A home inspection is a visual inspection of the structure and components of a home to find items that are not performing correctly or items that are unsafe. If a problem or a symptom of a problem is visible, the home inspector will include a description of the problem in a written report and may recommend further evaluation. Before you close, you need to consider whether or not repairs are needed now and who’s going to pay for them.
Emotion can often affect the buyer and make it hard to imagine any problems with their new home. A buyer needs a home inspection to find out all the problems possible with the home before moving in. Review the inspection and make a list of items you think the seller should address and present them to the agent promptly. While the inspection is not meant to be a tool for renegotiations, many times it becomes one. You need a qualified, unbiased inspection, so when the inspector does find problems, they won’t be easily minimized by the other parties.
A home inspector’s report will review the condition of the home’s heating system, central air conditioning system (temperature permitting), interior plumbing, electrical systems, roof, attic, visible insulation, walls, ceilings, floors, windows, doors, foundation, crawlspace, and visible structure. Many inspectors will also offer additional services not included in a typical home inspection, such as mold testing, windstorm inspections, four point inspections, pool inspections, seawall inspections and termite inspections.
7) 4-Point Inspection:
A visual survey of the following four primary components:
4) HVAC (Heating, Ventilation, & Air Conditioning)
Insurance companies are expecting the condition of the components listed above to be working as intended within the manufacturer’s specifications. Insurance wants the four primary systems to be in generally good working condition and fulfilling their intended function. If the home is an older home, the insurance companies want to see that the systems are up to date.
The criteria used to judge the components include:
• Current Operating Conditions
• Deficiencies, Repairs and or Safety/Fire Concerns
• Expected Life Service
8) Wind Mitigation Inspection:
The purpose of a windstorm inspection is to determine the quality of a given structure’s construction in the event of strong winds, such as those present in a hurricane.
Wind Mitigation inspections look for construction features that have been shown to reduce losses in hurricanes. Items such as concrete block construction, a hip roof, the presence of gable end bracing, shutters and opening protections, roof to wall attachments such as toe nails, clips or hurricane straps, and the presence of a secondary water resistance barriers.
A homeowner with windstorm insurance can submit the results of a Wind Mitigation inspection to their insurer to obtain discounts on their windstorm insurance. In Florida, for example, premium discounts for favorable wind mitigation features are mandated by State law and can total 45% of the original policy’s premium.
9) Choosing a Mortgage Lender:
There are many mortgage lenders to choose from. You should evaluate lenders on four key factors:
• Interest rates
• Closing costs
• Product offerings
• Customer satisfaction
Interest Rates – Lenders charge different interest rates, so by shopping around, you could find a better deal for your mortgage.
Interest rates are fairly consistent between lenders for fixed-rate mortgages, as lenders all base their rates on the national average and other factors. However, choosing a lender with a rate a few tenths of a percentage lower could still save you hundreds, potentially thousands, over the course of the loan.
There are more differences between lenders with adjustable-rate mortgages. Lenders customize these loans because they have more flexibility to increase rates later. You should spend more time comparing lenders for an adjustable-rate mortgage because you have a better chance of finding a better deal.
Closing Costs: When you factor in closing costs, including the application, appraisal and loan origination fees, the lender with the lowest interest rate may not offer the best deal. Compare closing costs between lenders, using the APR to find out how much you’d owe per year for a loan when you factor in every cost.
Product Offerings: Your lender may offer different loan terms like 15-, 20- and 30-year mortgages with fixed or adjustable interest rates. There are many variations of adjustable-rate mortgages based on how often the rate can change and by how much, such as 3/1, 5/1 and 5/5. If you want an adjustable-rate mortgage, look for a lender with multiple options so you can find the right fit.
If you want a FHA, VA or USDA loan, find a lender that participates in that program.
Customer Satisfaction: You should use customer satisfaction reviews to research lender performance. Lenders that don’t treat their customers well might not be worth signing up with, even if they offer great loan rates. You’ll be working with your lender for years, so you want one that will treat you well and that won’t make mistakes.
10) The Mortgage Loan Process:
Obtaining a mortgage requires several steps, including preapproval, appraisal and underwriting, before you’re ready for closing.
1. Prequalification: Prequalification will give you a quick estimate of how much you can borrow for your mortgage. You’ll share basic financial information, including your income, savings and outstanding debts. There’s usually no fee to get prequalified, and you can apply quickly by phone or online. However, getting prequalified doesn’t guarantee you’ll qualify for the mortgage.
2. Preapproval: Preapproval is much more thorough than prequalification. The lender will review your financial situation, similar to when you officially apply for a mortgage. You may be required to pay an application fee.
Expect to submit complete financial documents, including:
• W-2s for the previous two years
• Pay stubs
• Proof of bonuses
• Your most recent federal tax return
• Two to three months of bank and investment statements (such as brokerage, 401(k), IRA, Roth IRA, 403(b) and pension statements)
• Profit and loss statements or 1099 forms (if you own a business)
• A list of your debts, including credit cards, car loans and student loans, along with your minimum monthly payment for each
• Canceled checks for your current rent or mortgage
• Social Security or disability statements
• Alimony and child support payments
• Bankruptcy discharge paperwork
The lender will review your credit report during preapproval. With a preapproval, you’ll learn the maximum amount you can borrow for a mortgage. There could be restrictions to the agreement, such as the lender may need to approve the property, and the preapproval may be rescinded if you lose your job. However, getting preapproved shows your financial situation is most likely strong enough to qualify for a loan.
Getting preapproved will save you time after you find your property because most of the work is complete.
3. Application: After you’ve found your property, you can formally apply for a mortgage. The mortgage application will ask you questions about the property and your financial situation. A typical application could ask for:
• The address of the home you want to purchase
• The type of home
• The size of the property
• The expected sale price
• An estimate of the home’s value
• The annual property taxes
• The homeowners association dues
• The loan amount you want to borrow
If you’ve been preapproved, the lender has already reviewed your financial documents and checked your credit. Otherwise, you’ll need to send in the documents listed for preapproval as part of your application.
Sickler recommends that you be as upfront and accurate with your application as possible, especially with financial issues. That way, you can avoid delays. For example, you may report your W-2 income as $50,000, but it could be lower if you took a few months off for disability. The lender will identify this discrepancy eventually, so it’s best to be clear from the start.
4. Loan estimate: After you send in your application and documents, the lender must give you a loan estimate within three days of completion as required by federal law. The loan estimate gives you an overview of the mortgage that the lender would give you, based on a preliminary inspection of your application.
This estimate will include the interest rate, monthly payment, total closing costs, estimated taxes, insurance fees and other details of the proposed loan.
The loan estimate is not an official offer, but a prediction. The lender still needs to verify your information, so the actual loan could be different. You have 10 business days to make a decision on the loan estimate.
5. Processing: If you accept the estimate, the lender will send your application, credit report and financial documents to be reviewed by a mortgage processor. This company will review your financial documents to make sure they’re accurate, as well as the property title to make sure the house can be legally sold.
If there are any financial red flags, such as missed payments on other loans, the processor will ask you to explain the situation in a letter of circumstances.
6. Additional documentation: The mortgage processor could ask you to submit other documents as part of its review, sometimes due to errors such as a missing page from your tax return.
Government programs may ask for additional documents that aren’t part of the typical application. For example, with VA loans, you’ll be asked for a certificate of eligibility to prove your military service. Be sure to send in these documents as soon as possible to keep your application on schedule.
“Delays happen here because clients didn’t know what to report,” says Sickler. “For example, someone sends in their paycheck, but doesn’t mention they’re paying alimony and child support. The processor’s going to need this information before they can move forward.”
Ideally, your loan officer or mortgage broker will verify that you submitted all the proper documents, but if the processor is missing anything, he or she will ask for it at this point.
7. Appraisal: The lender will hire a professional to complete an appraisal of the property. The appraiser inspects the property to come up with an opinion of how much it’s worth. This could be different than the price you agreed to with the seller.
The appraiser will look at the house size, location, amenities and physical condition to determine the value. You’ll receive a copy of the appraised value of the house within three days of the appraisal. This report will explain how the appraiser determined the value of the house and how it compares with similar properties in the area.
The lender could deny your mortgage if the appraised value is less than the agreed sales price because the property might not be enough collateral for your loan. In this situation, you can make a larger down payment to cover the difference between the sales price and appraisal, negotiate to a lower sales price or ask the seller to lend you the money through a second mortgage. Another option is challenging the appraisal.
8. Underwriting: Once the mortgage processor has finished the review, a report goes back to the lender so it can decide whether to approve the loan. The lender might approve your mortgage, deny it or ask you for more information. If the lender is satisfied, it will approve your loan after underwriting.
9. CD / Closing Disclosure: After the lender has approved your mortgage, it must send you a closing disclosure document. This document is similar to the loan estimate. The difference is that the numbers on this document are no longer estimates. It lists information about the mortgage including the monthly payment, interest rate and closing costs.
You should compare the closing disclosure to your loan estimate. The Consumer Financial Protection Bureau offers a that you can use to analyze your disclosure. If the numbers are significantly different and throw off your budget, you may need to rethink the purchase. The lender must give you the closing disclosure at least three business days before your closing date so you have time to review before finalizing the sale.
10. Insurance: Most lenders will ask you to buy homeowners insurance to protect their investment.You’ll need to apply for insurance after you’re approved for the loan. The insurance company might not have enough time to complete your application before the closing date. In this case, you’ll receive an insurance binder, which is temporary coverage for the property that lasts 30 days. With an insurance binder, you can close the deal and your regular insurance policy will be ready after the sale.
11. Closing: Closing is the last step of the entire process. You’ll have one last closing meeting with the seller, the real estate agents, a title company representative and possibly a representative from the lender. You may need to have an attorney present, depending on the rules in your state.
During this meeting, you’ll review the final documents for the sale, sign the necessary forms to complete the transfer and pay your down payment plus the closing costs. You should bring your ID, proof of homeowners insurance and a cashier’s check for the payment. You could also set up a wire transfer to pay before closing. However, a personal check will not be accepted.
After signing the paperwork, it’s time to receive your keys!!
11) Homeowner’s Insurance:
A Homeowner’s Insurance policy covers both your personal property and the actual structure of your home. In addition, a homeowner’s policy covers your legal responsibility / liability should an accident occur on your property.
Homeowner’s insurance policies may include provisions for:
– Dwelling (for damages to your house)
– Other structures (for damages to fences, garages, sheds, etc.)
– Personal property (for damages to possessions)
– Loss of Use or additional living expenses (for times when your home is being repaired)
– Personal Liability (coverage for injured on your property or by your pets on your property)
12) HOA’s – Home Owner’s Associations:
HOA’s are established by real estate developers for the purpose of managing, selling, governing, & marketing, homes and lots in a residential subdivision. HOA’s grant the developer privileged voting rights in governing the association. Generally, the developer transfers ownership of the association to the homeowners after selling a predetermined number of lots. Generally home buyers within the purview of a homeowners association must become members, and must obey the restrictions set forth by the association. Most homeowner associations are incorporated, and are subject to state statutes that govern non-profit corporations and homeowner associations. State oversight of homeowner associations is minimal, and it varies from state to state and community to community.
13) Role of a Title Company:
A Florida title company is responsible for coordinating the interest of all parties to a real estate transaction, including the buyers, sellers, mortgage lenders, real estate agents, lien search companies and surveyors. … The Florida Title Company will provide the new buyer with a copy of the survey at closing.
Title companies generally act as the combined agent of the insurance company, the buyer, the seller, and any other parties related to a real estate transaction, such as mortgage lenders. The title company reviews title, issues insurance policies, facilitates closings, and files and records paperwork.
14) South Florida Roofing:
Florida weather presents special challenges to manufacturers and installers of roofing materials. A high proportion of sunny days (for example, ) and location not far from the tropics mean that roofs are exposed to high heat and intense exposure to ultraviolet rays nearly year-round. Coastal locations expose roofs to salt spray, and tropical storms and hurricanes may subject them to extremely high winds. All of these can either gradually degrade the roofing materials or catastrophically damage not only the covering but the very structure of the roof itself.
Types of Roofing include shingles, clay/barrel, metal/aluminum, and concrete. Each type has it’s own unique advantages and disadvantages too. Factors to consider are replacement cost, durability, life expectancy, and hurricane worthiness here in the sunshine state.