Personal Finance III – Understand Other Cost and Needed of Borrowing
As we mentioned in previous article, Consumer loans refers to people borrow money to make a wide range of secured and unsecure loans to consumers for consumable items from lending institution. Consumer loan does not include mortgage loans, that is typically used only for home purchases. In this article, we will discuss types of consumer loans. In this article, we will discuss other requirements for borrowing.
In order for the borrower to get the consumer loan, the lenders may require the following
1. Life Insurance
a) Lenders often require that their consumer loans be life-insured. They do this by having a group life insurance policy that covers the lives of their borrowers against the risk of someone dying before her/his debts have been repaid. This insurance on the life of the borrower is called credit life insurance.
b) When an insured borrower dies, the insurance company will pay the lender the outstanding balance due on the debt. otherwise, If the borrower dies without having credit life insurance, then that person’s estate is responsible for repaying the loan.
2. Disability Insurance
a) Most lenders do not require borrower to have disability insurance, but credit unions often do.
b) For an additional fee, disability insurance covers the borrower for the risk of being unable to make monthly payments because of personal disability.
3. Interest Charges
a) The cost of borrowing depends upon the lender’s cost of money, the assessment of the risk of the loan not being repaid, and the services offered.
b) Deposit-taking institutions, with a ready supply of funds to lend, can charge lower rates than small loan companies that have to borrow funds to lend.
In order to cover the costs of the banks, trust companies, and credit unions, the government allow a 1 to 3% spread between the rate paid to depositors and the rate they charge borrowers.
All banks, trust companies, and credit unions establish the level of risk they will accept and refuse loans to those who do not qualify.
I hope this information will help. If you need more information of health advices or series of articles of the above subject at my home page at:
http://medicaladvisorjournals.blogspot.com
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
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Kyle J. Norton
FHA mortgage loans & limits?
We are looking into buying a new house in the mid-$400k’s before we sell our current home, but this means that we would need a larger loan and that we would have less cash available up front for closing costs and downpayment. Buying before we sell our home means that after all the closing costs, we would only have 3.5% – 4.5% as a down payment.
I don’t want to give my state/city-county because that is too much personal information for a Q&A site, but I already checked and the HUD website’s FHA loan limits in the area where we would buy the new house are: FHA Forward $271,050 ($280,000) —AND— Fannie/Freddie $417,000. Depending on the offer that is accepted, we’d need to borrow between $425,000 and $435,000, and again, we’d have 3.5% and 4.5% for a down payment (after we pay closing costs).
We’ve talked to 2 lenders who only discussed FHA loans since apparently only FHA loans will allow as small as a 3.5% – 4.5 % downpayment:
(1) Lender #1 told us we have no choice but to get a conventional loan since we cannot get an FHA loan for more than $280,000 — end of story. He said there is absolutely no FHA loan available for loans over $280,000. As for non-FHA loans, Lender #1 said there is a cap for conventional loans of $417,000, and even then, we’d have to have a 12% down payment. In other words, we MUST sell ours first to have enough cash for closing/down payment.
(2) Lender #2 said we can borrow up to $450,000 on an FHA loan as long as we have a 3.5% down payment because our debt-to-income ratio is good enough. He said there is no $280,000 or $417,000 limit on FHA loans when the loan is a jumbo (aka, "non-conforming") FHA loan. The debt-to-income ratio is all that matters.
What?! Something seems really wrong with what we’ve been told since the two lenders seem to contradict each other on the FHA "facts." We understand that different lenders will only finance conventional loans under the terms they set, but the FHA rules are rules – they can’t be different from lender to lender?
Can someone explain and make some sense out of this?
Add’l details: The house is NOT in a high-cost area.
Answers #1 & #2 have already responded to my questions on point, but if others want to respond, please feel free to do so. Don’t be misled by GVD’s lack of comprehension, though; I’m not looking for rate quotes, I’m clearly not soliciting a loan from anyone on this site, & I’m intelligent enough to have provided the accurate limit information in my question. Thus, you may rely on my facts to provide answers to my questions.
There is such a thing as a Jumbo FHA loan, but they are only available in high-costs areas. Either the 1st lender didn’t know you were in a high-cost area or the 2nd lender thinks you are.
But…if you’ve already checked HUD’s website and found your FHA limit is $281,050 then it sounds like you are NOT in a high-cost area and won’t be eligible for the higher financing amount.
References :
I’m a loan officer
FHA loans have basic requirements; however, each lender can specify more specific criteria for these loans – which is why you will always get different answers. This site: http://www.fha-home-loans.com/loan_qualifying_fha_loans.htm will give you the few basic regulations of an FHA loan. Jumbo loans kick in at $417,000… and you will have higher interest rates for these loans. It would be in your best financial interest to put enough down to bring your loan under $417,000.
FHA rules can be different for each lender, as long as they still follow the basic regulations that have been set. A lender has a right to set any rules it wants because ultimately if you default on the loan… they lose.
References :
KL is correct and you will need to provide at least what zip code you are buying in if you want anyone to be able to assist you. Not sure how providing a zip code is personal, but it’s your choice. If you give that much info we can tell you exactly what you can borrower and with how much down.
FYI, you can get a conventional loan up to $417,000 with 5% down just about anywhere.
Response to EDIT:
That does not tell us anything, we don’t know if your limit is $417,000 or $280,000 as you say. If you are not willing to provide even the most basic information for someone to help you, don’t waste people’s time asking. Mortgages are not like ordering a #3 at McDonalds; you have to provide more input to get an informed answer.
Good luck to you.
2nd EDIT: Not sure how your question was addressed because you were asking which person was correct in the information they gave you. That is impossible to answer without knowing where you are. If you already knew your FHA limit, why did you need sense made out of it?
If you think I was soliciting you, trust me, I don’t solicit people here, my clients find me when they need real answers! I only work in California and from the sound if it, you are certainly not here!
Again, best of luck to you!
References :
California Mortgage Loan Officer
Since you did your homework and lender 1 basically confirmed what you found out, you know that lender 2 is pulling your chain. FHA county loan limits apply to any FHA loan so it’s not something a lender can arbitrarily change or ignore.
Since you know that you are not in a high cost area, your loan will be capped at $417,000 for any conventional financing. This means you can buy at $435,000,00 and as long as you can put 5% (which is the minimum for a conventional mortgage) down you fall just under the $417,000 limit.
I have a question for you. You said you will have 3.5 to 4.5% available for a down payment after you pay closing costs. Are you talking about the closing costs on the home you’re selling or the home you want to buy? If it’s the home you want to buy, ask for seller concessions to cover your closing costs which frees up more money for your down payment.
If you have any assets that you can liquidate that may help cover your down payment as well.
References :
I’m a mortgage banker/broker
http://www.bestflatratemortgage.com