FEMA has a National Flood Insurance Program so that if the home you purchase is determined to be in a flood area, you can get insurance to protect you. They warn that flood insurance is not usually covered by homeowner’s insurance. Most people would think that home owner’s insurance covers all natural disasters, but flood are not covered even though they are the leading natural disaster in the U.S.

Some more facts that you should know about flood hazards before you purchase a home are:

• According to FEMA, close to 25% of all the claims made in their flood insurance program are from areas that were considered a minimal flood risk. This is why it may be important to have flood insurance even if your risk of flooding is low.

• The FEMA flood insurance program has a 30 day grace period before insurance coverage goes into effect, so make sure and get coverage before you need it.

• According to FEMA, everyone lives in a flood zone. Water levels can rise and flood anywhere, it is just a questions of the risk of it happening to your property.

• The amount of risk is what is determined when looking at if you are in a flood zone or not. If you are considered to be in an official flood zone where your risk is high, then you will be required by your lender and the VA to carry flood insurance which is an added expense to you and your family.

• The VA requires a third party representative who is not personally invested in the property or parties involved to do the flood zone determination.

For more information on the FEMA flood insurance program, and to see how high risk your property is for flood damage go to FloodSmart.gov.

Even though you may qualify for a large loan that does not mean that you want to take that amount.  There are factors that mortgage lenders do not consider about your lifestyle and money choices that you need to think about when considering how much you want to pay into your monthly housing payment.  Here are some things you should always consider when taking out a mortgage loan:

•    How much can you really afford?  If you are approved for a $400,000 loan do you really want to purchase a $400,000 home?  Along with that large price tag comes large tax bills, maintenance, and depending on the area you are in, it may take a while for you to sell a high priced home in the case you choose to resell the house.
•    What type of lifestyle do you enjoy?  Many people are house poor because they allowed themselves to get carried away and take a large loan amount that they can barely afford.  Now they better like the home they purchased because they are not going to be going out much because they are spending all their extra money on their home.  If you enjoy eating out, vacationing, shopping, or other luxuries that are costly make sure you consider these expenses when you are budgeting how much you can afford for your monthly mortgage payment.
•    Do you have any expensive hobbies?  If you like to go boating, skiing, sky diving, or any other costly extra curricular activities you should consider these as expenses when you are tabulating how much of a mortgage payment you can afford.  The more pricey the hobbies you have are, the less money you should spend on your home unless you are willing to give them up.
•    How secure is your job, and do you work in a field where jobs are readily available?  If you are not sure about what your employment status will be in the future, you should consider taking out a mortgage that will be affordable even if you have to take a lower paying job.  This will also allow you to save up some rainy day money in case you are unemployed for any period of time.
•    How much do you need to save for the future?  Consider how much a month you would like to put away for savings, retirement, and other long term goals.  Figure your monthly budget without this money when you are considering how much to spend on your mortgage payment.
•    Do you have a large family or expect to start a family?  Children are extremely expensive at all ages.  Once you have children you may want to begin college funds, take out larger amounts on your life insurance policies, or other family related expenses that you may not have right now.  Consider future expenses when you are budgeting for your monthly mortgage payment.
•    Think of any future expenses.  Are you going to get insurance for your mortgage in case something happens to you like death or disability?  Are you planning to get a new car payment soon, and with that how much will your car insurance increase?  You should always keep in mind possible expenses in the future in order to really be prepared for your financial circumstances and know how much home you can afford.

These suggestions include:

•    A normal sale.  You can list your home for sale by owner or have a real estate agent sell it for you.  There are fees involved with a real estate agent, but the home could see faster this way.

•    A short sale (also known as a pre-foreclosure sale) is when you sell your home for less than what you owe.  If the real estate market declined in your area or you borrowed so much in equity on your home and now it is worth less that what you owe on it, then your lender may be willing to take less than what you owe.  You must have been trying to sell your home with no offers, be behind on payments and unable to catch up or make current payments, and an appraisal shows that your home is worth less that the loan payoff.

•    You can give back the house to the lender.  The lender may allow you to be clear of your mortgage loan debt if you give up your rights to the home and turn over the deed in full to the lender.

•    Mortgage assumption. This is when a buyer takes over the mortgage and assumes payment.  This buyer will now own the home and you will no longer be responsible for mortgage payments.

All of these are the ways in which the FHA suggests that people who need to sell their home do so in order to avoid foreclosure.  It may be difficult to sell, but if there is no other choice it is better to make arrangements so that foreclosure can be avoided and your credit can be preserved for the future.

Some of the ways in which you can make up back mortgage payments include:

•    Forbearance- this is when your lender is willing to let you have a little time off from payments in order to get caught up financially.  This is usually a good option if you lost a job and need time to start working at another place where you will have to wait for your first paycheck while catching up on other bills as well.  Once you get back on track you can make your back payments or make a payment plan to bring your loan current.

•    Payment plan- this is when your lender allows you to pay a little extra each month until the missed payments are paid.  You have to set this up directly with the lender.

•    Reinstatement- this is when you agree to pay back the entire amount that you own at a specific time.  This works well if you are able to make your current payments, and are expecting a lump sum of money in the near future like a commission bonus from work or a large tax return.

•    Insurance- if you have insurance on the loan that covers you in the case of loss of employment, illness, or death, then make a claim.

•    The FHA has a partial claim service.  This allows borrowers to take a one time loan without interest that will repay their missed mortgage payments.  This loan will not have to be repaid for years, and that gives the borrower time to save the money and increase their work wages over time so that they can afford to pay back the loan.

•    Change the terms of the loan.  Sometimes lenders are willing to lower interest rates, or extend the time of the loan in order to give the borrower the extra money they need to afford their monthly payment.

All of these are ways in which a borrower can keep their home, get out of default, avoid foreclosure, and repay their back mortgage payments.  For more information on the FHA and help avoiding foreclosure talk to us.

For those of you who are currently renting and considering buying, but want to know what you are getting yourselves into here are some things to consider before you take the plunge and purchase a home:

•    Owning a home means you are responsible for all of the general maintenance for that home and the surrounding property.  You have to mow the grass, clean out the gutters, trim the hedges, remove any debris in your yard like tree limbs and leaves in the Fall, plow the snow out of the driveway, and more.
•    You are also responsible for the appliance maintenance or replacement in your home.  Appliances like your stove, refrigerator, dishwasher, furnace, hot water heater, water softener, and more.  If these items stop working or need replaced it can be a large unexpected cost to you.
•    Routine maintenance can also be extremely costly.  If you have a septic system it is suggested that you have it pumped out every two years, your water softener needs to be kept full of salt, the furnace filter needs routinely changed, and other regular costs that can add up to a lot of money in the long run.
•    Any large problem with the home, like roofing problems, plumbing problems, electrical problems, well problems, and sewage problems can be extremely expensive to fix or replace.
•    The upkeep of the home such as painting, landscaping, interior decorating, and remodeling can also be costly.
•    Property taxes are a necessary cost to any homeowner.  The cost of these taxes depends on the assessed value of your home and need to be paid on time twice a year or a lien could be put on your home for not paying these necessary taxes.
•    Home owners insurance is another necessary cost.  Your lender may also require you to have mortgage insurance which can be costly.

Some of the more positive aspects to owning your own home include:

•    It is a great investment.  You are putting a lot of money into your home when you pay your mortgage every month and it is money saved for you and your family as equity builds in the home.
•    You are not paying rent for someone else’s home.  The money you pay in rent goes towards paying your landlord’s mortgage which benefits his financial situation instead of yours.  When you purchase a house your mortgage payment goes towards your future wealth.
•    You can decorate the home the way you want.  Remodel it, paint it, change it in any way because it is yours.
•     Your mortgage interest is tax deductible.  At the end of the year you should get a statement from your lender with the amount of mortgage interest you paid that year which is a tax deduction and can save you money on your federal income taxes.
•    The security that comes with owning your own home.  If you rent you can be evicted if the landlord decides to sell the home, but if you own your own home you can settle in and feel secure in your location.

So when considering if you should purchase a home you should really look at your own personal lifestyle to help you make that decision.  If you are gone a lot and like the freedom to do what you want without a lot of responsibilities then you should consider continuing renting unless you can afford to pay someone to help with the upkeep the homeownership requires.  If you are a home body who likes to keep busy around the house then maybe purchasing a home is a great idea for you.  Think about what you value in the way of time and money and then make an informed decision that reflects your priorities and goals in life.

The new system, which will begin on January 1, 2008, will determine the borrower’s premium based on his or her credit profile. This will allow for borrowers with better credit to pay a lower percentage. Borrowers with poor credit will have to pay a slightly higher amount. This system has been in place in the private loan market since the mid-‘90s. The main reason for this change is to attract borrowers with fair credit who would have chosen sub-prime loans over FHA because of the lower mortgage insurance. This change, along with other proposed changes to the FHA, are all part of the push to make FHA loans relevant in the 21st century.

FHASecure is a new refinance option that is being offered to borrowers who have a good credit history and were making on-time payments before their adjustable-rate mortgages reset. The program has stringent underwriting guidelines and borrowers will have to pay a mortgage insurance premium, which are both safeguards for the borrower, lender, and taxpayers. More obvious benefits to the program include the FHA’s trusted foreclosure prevention assistance and the absence of prepayment penalties.

According to a statement released by HUD, homeowners must meet the following five criteria to be eligible for FHASecure:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2009;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

In addition to the introduction of FHASecure, it was also announced that risk-based premiums will be implemented beginning on January 1, 2008.

Alt-A loans are typically subject to manual underwriting, which may make the process take as long, if not longer, than securing a traditional loan. However, one of the benefits of manual underwriting is the increased flexibility provided to the borrower. Another point about Alt-A loans is that their interest rates are usually slightly higher than traditionally documented loan. This amount is usually less than one percentage point higher than a conventionally documented loan. That being said, many individuals applying for an Alt-A may not qualify for conventional loans because of their unique situations.

There are a number of subtle variations among different Alt-A loans, making it important for borrowers to get all the facts before making any commitments.

Here’s the first sentence of this Harold Brubaker story on the Federal Housing Administration’s resurgence given the continuing subprime crisis:

As the mortgage industry goes through a wrenching retrenchment, government-backed loans for first-time homebuyers and borrowers with credit problems are coming back into favor.

Increasingly, new homeowners and shoppers and existing mortgage holders are turning to the government-backed loans of the FHA for help in securing a home or easing financial burdens. The FHA fell out of favor over the past decade as loose loan providers offered prospective homebuyers of all stripes financing without proof of income or financing restrictions. Now, the housing market and the country’s economic market as a whole is suffering the consequences of widespread failure and foreclosure stemming from the subprime market.

Suddenly, the FHA is back in the spotlight.

Homeowners holding subprime mortgages and those at risk of losing their homes to default or foreclosure are turning to the FHA for help in refinancing and, perhaps, saving their homes.

Federal lawmakers are working on legislation that would overhaul and modernize the agency, making it easier to provide relief to needy homeowners. The FHA expects to refinance about 120,000 loans this year, although administration officials have said repeatedly that they could refinance twice that amount if some of the guidelines and regulations eased. An overhaul may do just that.

Among the options being discussed in Congress is eliminating or reducing the required 3% down payment, raising the size of the loans FHA can insure to as much as $417,000 from $362,790, and being able to charge insurance premiums based on a borrower’s risk instead of a one-size-fits-all rate, according to the Wall Street Journal, which also recently wrote about the subprime crisis in a story titled, “How the FHA Could Help Borrowers.”

We’ve been telling you about all of this for weeks, because we want to help borrowers, too. If you need help refinancing your current mortgage or simply have questions about what’s best for you and your family, contact the lending and refinance experts at Mortgage Loan Place today.