Financing

New FHA Mortgage Limits

HUD announced in December that FHA mortgage loan limits will increase for all Indiana counties.  In 2018 the loan limits ranged from $294,515-322,000.  Corresponding limits in the new year will run from $314,827-343,850.  FHA mortgage loans are insured by the federal government.  In most cases, they require a minimum cash down payment of 3.5% of the purchase price (ie. A house selling for $100,000 would require a cash down payment of $3500).  The urban rumor mill has it that these are for first time home buyers only.  That would be wrong!  They are available to most anyone, regardless of income or whether you’re a first time buyer or it’s your seventh house.  However, generally you can have only one outstanding FHA loan at a time, and they are for primary residence only.  You cannot buy a rental property with a FHA loan— (drum roll) you can buy a 2-4 unit property with a FHA loan if you are going to live in one of the units!  And even in that case, the down payment is only 3.5%!  Talk about a way to get started in real estate!!  Want to know the loan limit in your area?  Call the experts at Indy’s Choice today.

Trying to Avoid a Jumbo Loan??

I was talking to a client this past month and they mentioned they wanted to stay clear of a JUMBO loan.  We discussed some strategies that I have seen over my years in the business that have proven helpful to some in these situations.

  • Consider borrowing from your 401K. Most 401Ks allow one to borrow from the plan.  Typically, there are no upfront cost and you’d be repaying yourself.  It usually takes about 21 days to get the $$$ in your hands.  All you usually need to qualify is a copy of your purchase agreement and a preliminary settlement statement (from the closing agent) on the new house and you’re good to go
  • Do a Conventional/Conforming 1st mortgage and couple it with a simultaneous second mortgage or HELOC (Home Equity Line of Credit) to fill the gap. Then once your current house sells or you get your bonus or whatever, you can pay off the second / HELOC.  Typical costs of a HELOC are minimal, the rate is good, and repayment is often interest only.  Interest is usually deductible.  Not all mortgage lenders will have these products, though you can oftentimes coordinate with a bank or credit union to do that piece of the transaction
  • Plan on doing a Conventional/Conforming 1st mortgage on your purchase.  Take out a HELOC on your current residence now. This approach does not affect your current 1st mortgage.  Again, the upfront cost is minimal, interest rate is good, and repayment is often interest  Interest may not be deductible but you should only have this for a few months anyway.  Going this route gives you your equity in cash to work with as you go into the new transaction.  It is important to know that this MUST be completed prior to your house being listed or put on the market. It’s about impossible to find a lender who will make that loan once you’ve listed it or the terms will be far inferior.  Turnaround time on this is probably 1-3 weeks.  Different lenders work these differently and with various timelines.
  • Some combination of the above.

Hopefully this gave you some food for thought on how to avoid that Jumbo Loan. When you are ready, give me a call or text at (317) 625-0655. I’d be happy to jump on a call to work through these strategies and determine what is best for your situation.   Until then, make it a great day! – Bob

How to Best Tackle Appraisal Concerns

More often than not when it comes time to have the appraisal done with properties with acreage, there can be challenges. (Or should we call it really what it is – PROBLEMS).  That all has to do with $$$$$$$.  Most types of residential financing take a dim view of excess acreage, pole barns, outbuildings, and farming activity.  Think VA and FHA as two forms of financing that can be particularly tough when it comes to these items.  As a rule of thumb, residential lenders will not lend on a working farm.

But you ask, “That makes no sense!  Wouldn’t a lender rather have 10 acres leased out to a neighboring farmer, than have that land unproductive?”  And the answer would be “No”. The lender would rather it not be farmed.  And if the property has any outbuildings that cost $40,000 to build new, the appraiser and lender are only going to give $5-10,000 of value for it.  So, as you approach buying a property with acreage, you’re going to want to double check your financing strategy to make sure it measures up.

The GOOD NEWS is that there are lenders who will lend on working farms.  Think Farm Credit.  Maybe others if you can convince them that you will not be farming the property once you buy it.  Another factor that can make a difference is the size of your down payment.  Generally speaking, there will be more options if you have a larger down payment.  If your down payment is small or non-existent and you’re trying to buy a property with acreage, then you’ve got to bank on the property appraising for the sale price without a whole lot of value being given to the excess acreage.

Buying a property with these characteristics may take an extra dose of patience and persistence.  Know that this is not our first rodeo.  Having been in the mortgage business for 17 years, I can be in your corner coaching you over and around all of the challenges! Give us a call!