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Thread: FHA Mortgage Question

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    FHA Mortgage Question

    Ok, we've been trying to buy a house for months now...our limit on what we can/want to buy is low, and we keep getting turned away on offers because of the stupid FHA loan requirements. The places we want need work, and we're fine with it...the lender and sellers aren't, though.

    We're already working on saving up more money while we've got few bills to pay, Mox has almost been with his job for 2 years (which will help for stability reasons), and we're paying off all credit card balances and working on raising our credit scores.

    I just want to know how we can get out from under the FHA loan. We have family that's super handy (i.e. carpenter, plumbing skills) and we don't mind getting a place that needs some work. We just want to be able to throw our weight around when making an offer on a house!

    Also, we are first time home-buyers. Can anyone give me some information/companies that will help us out? Thanks!

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    Default Re: FHA Mortgage Question

    http://www.fha-home-loans.com/index.htm here the link for FHA. You might be able to find more answers there about FHA.

    The biggest help is really what you are already doing. When your credit score is better and your debit ratio is down you will be able to go to a conventional lender.

    http://www.fanniemae.com/index.jhtml here is a link to Fannie Mae's website. They are largest backers of mortgages in the US. They have tons of information on their website for first home buyers. Information about requirements for conventional mortgages, how to raise your credit score, how the process works, and alot more.

    I would suggest staying away from "creative financing". If your credit score is low and you dont meet criteria you could go to a sub-prime lender. The problem there is they will get a mortgage they can work you into. Which is usually one with high interest rates, horrible terms, penalities, fees and tell you to refinance later. Refinance means more closings costs and more hassle. Do it right the first time with a little work.

    Good Luck

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    Default Re: FHA Mortgage Question

    Quote Originally Posted by Vamp
    I would suggest staying away from "creative financing". If your credit score is low and you dont meet criteria you could go to a sub-prime lender. The problem there is they will get a mortgage they can work you into. Which is usually one with high interest rates, horrible terms, penalities, fees and tell you to refinance later. Refinance means more closings costs and more hassle. Do it right the first time with a little work.
    I know what you mean. We both have good credit scores, but it's the length of our accounts that hurt us (we're both 21, so we haven't had credit cards and such for long). Hopefully we'll figure out a way because all the FHA loan is doing is screwing us out of some really great properties.

    Thanks for your input!

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    Default Re: FHA Mortgage Question

    I bought my first house through FHA, and you're right...it is more difficult. The program didn't stop me from getting a house that needed major repairs because the seller was deserate to sell and didn't care how it was financed, just that they were getting the money. They were responsible for fixing a lot of it as part of the settlement and I didn't have to pay for it. I can see why sellers wouldn't want FHA buyers. But....that was when it was a buyer's market. Times have changed. You might need to wait it out a bit. Or maybe offer a way to pay for the repairs so it can pass FHA inspection?

    I thought the thing with FHA was that you didn't need as much of a down payment. Maybe if you can find a down payment somehow, then you can finance through different methods?

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    Default Re: FHA Mortgage Question

    Quote Originally Posted by Emily
    I bought my first house through FHA, and you're right...it is more difficult. The program didn't stop me from getting a house that needed major repairs because the seller was deserate to sell and didn't care how it was financed, just that they were getting the money. They were responsible for fixing a lot of it as part of the settlement and I didn't have to pay for it. I can see why sellers wouldn't want FHA buyers. But....that was when it was a buyer's market. Times have changed. You might need to wait it out a bit. Or maybe offer a way to pay for the repairs so it can pass FHA inspection?

    I thought the thing with FHA was that you didn't need as much of a down payment. Maybe if you can find a down payment somehow, then you can finance through different methods?
    Em, most everything that we've looked at has been foreclosures...so of course the banks don't want to mess with FHA loans. It's been a really tight market for what we're looking for (something cheap to fix up and sell off later), but this area is also becoming a popular area for families with kids (good schools) and new houses are all the rage (they've even approached my dad about selling off his place for new development).

    I know that any repairs could be easily handled by my parents, but it would be convincing the lender/selling bank that would make things difficult. I don't want to pay someone to do the work when I've got...er...free labor at my disposal! It would just be easier to get a conventional loan, so that's why we've decided to wait for a while (at least a few months).

    Our plan is to get at least 5% saved up before making any more offers (we were going to do 3% before, but that's when we were still in the apartment and paying a ton of bills), so maybe we can find a lender that'll let us take out a non-FHA loan without messing us over on interest rates and stuff.

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    Default Re: FHA Mortgage Question

    You shouldn't have a huge interest rate unless you have bad credit. Having a low down payment is common. That's what PMI is for. The bank doesn't have to take a risk.

    Keep looking.

    I was bummed out that I had to get a house I didn't really want. My budget meant an okay house in a bad neighborhood or a shitty house in a kinda old, run down (but relatively safe) neighborhood. it wasn't an easy choice because they both suck. I chose the latter.

    But I've since upgraded and it's all good

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    Default Re: FHA Mortgage Question

    There's a basic risk equation at work with FHA ... if you want a low down payment and a low interest rate, in exchange the property must be immediately marketable / rentable in the event that you default on the mortgage. 'Fixer-uppers' don't fit well into the risk equation because much of the 'value' of the property depends on the fix-ups which will happen AFTER the sale and not before. Unfortunately this leaves the lender with nothing but promises that the fix-ups will actually take place, thus they face a huge potential variable in the actual value of their 'collateral' depending on whether or not the fix-ups actually are completed. It's a case of 'you can't have your cake (low down payment, low interest rate) and eat it too (low sale price of a distressed property)".

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    Default Re: FHA Mortgage Question

    Quote Originally Posted by Vamp
    I would suggest staying away from "creative financing". If your credit score is low and you dont meet criteria you could go to a sub-prime lender. The problem there is they will get a mortgage they can work you into. Which is usually one with high interest rates, horrible terms, penalities, fees and tell you to refinance later. Refinance means more closings costs and more hassle. Do it right the first time with a little work.

    Good Luck
    This is SO not true!

    Sure, there are some lenders out there that you should stay away from, however, scaring people off of "creative" financing as you call it, is just plain stupid. Just because you do not understand the game doesn't mean that no one else shouldn't play, either.

    FHA is a pain in the ass. They don't really save you money, you still have to put money down, they're "government" and the paperwork will drive any loan officer batty.

    The most important thing I can tell you is to go hit a bunch of loan sites and start reading up about the mortgage game. You need to learn about how a mortgage works, the pros and cons of every type of mortgage, what to look for in a mortgage and go from there. I could give you all of this info, but I would be posting for weeks at a time.

    Improving your credit score is the first step...but it takes time. There is nothing wrong with going "subprime". In fact, there are some subprime companies who are really more "Alt A" or even "B" paper lenders, where you can get a decent rate and when your credit score improves even more through a year of payments, you can refi and get another lender who'll give you an even better rate.

    You are looking for a house in a "seller's delusion" time. It's spring, the HIGHEST home selling time, and we're moving from a seller's market to a buyer's market. Sellers don't want to accept this and so will strong arm you about getting the most money for the dump they've never taken care of (I know, we've just bought and moved into our new house after looking for 12 FULL months!!). Your best bet would be to go to the local court house and get a listing of all the pre-foreclosures and foreclosures in the area you want to live in...if they are in your price-range, go strong arm them (not really, but offer them what you are comfy offering them based upon "attorney acceptance and appraisal review". Also, be careful about buying a house with a lot of "fix up" needed. While you have plenty of help to re-do the necessary things...unpaid help is not very reliable (commitment-wise) and frankly, living in a home that is torn up for 2-3 years is not only disheartening, it's annoying (we spent 2 years renovating our condo, only to move out...LOL).

    And, you have to be willing to out-wait the seller. While I know that you want a house, NOW, you have to go in with an, "I can wait" attitude. The longer the seller's house has been on the market, the more they will be willing to negotiate. Use that to your advantage. It's even better if you can find a seller who still owns the home that's for sale, and lives somewhere else.

    It's all about timing. Everything...educate yourself about the market trends in your area, learn about ALL the financing options available to you, and keep hitting the pavement. You'll find something soon. But, don't rush it, you may regret it later.

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    Default Re: FHA Mortgage Question

    Quote Originally Posted by Emily
    You shouldn't have a huge interest rate unless you have bad credit. Having a low down payment is common. That's what PMI is for. The bank doesn't have to take a risk.

    Keep looking.

    I was bummed out that I had to get a house I didn't really want. My budget meant an okay house in a bad neighborhood or a shitty house in a kinda old, run down (but relatively safe) neighborhood. it wasn't an easy choice because they both suck. I chose the latter.

    But I've since upgraded and it's all good
    Paying PMI is foolish. Completely. You can find good rates where you get an 80/20, 80/15, or an 80/10 loan. No one should have to pay PMI. At the same time, instead of paying PMI, you get an 80/20 loan and use the money that you would be paying towards PMI to pay off your 20 loan first...

    Don't let anyone tell you that PMI is a good thing. It's not. It's extra padding in the bank's pocket and you will never see that money again. This is where "creative financing" comes in. Why pay (depending upon your loan amount) $400 a year, or more, to PMI when you can use that to pay off your second loan and then have an LTV of 80%? With PMI, you pay that PMI until your LTV drops BELOW 80%. If you put down 10%, you could be paying PMI for 5 years...usually longer. Especially since within the first 5-10 years, you are paying mostly INTEREST and not principle.

    No, PMI is foolish. Put your money back into your house. Educate yourself about "creative" financing. Some people don't like the risks of it. But, for me, I'd rather take a "risk" (it's not a risk if you are educated on it) and save $40,000 than just take the easy way out and pay money out the nose because I didn't know any better.

    To sum up this post, STAY AWAY FROM PMI.

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    Default Re: FHA Mortgage Question


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    Default Re: FHA Mortgage Question

    you're right about PMI. I was foolish enough way back at my first house purchase that I just did what was given to me....FHA with nothing down and PMI. I also got a 30 year fixed, which was also a waste of money. I hated that house and there was no reason I'd want to stay there more than 5 years.

    I was lucky on my 2nd purchase that I had 20% down, so PMI wasn't an issue.

    I was just trying to illustrate that down payment shouldn't reflect on the interest rate that much because of PMI.

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    Default Re: FHA Mortgage Question

    Quote Originally Posted by VenusGoddess

    Also, be careful about buying a house with a lot of "fix up" needed. While you have plenty of help to re-do the necessary things...unpaid help is not very reliable (commitment-wise) and frankly, living in a home that is torn up for 2-3 years is not only disheartening, it's annoying (we spent 2 years renovating our condo, only to move out...LOL).
    Well...I say they need work, but that's because I'm super picky and know exactly what I want out of the house we buy. Most of them need cosmetic things (broken trim, a small hole in the wall, etc.), and I have yet to see a house that I didn't think, "Eww...it needs to be painted...it needs new landscaping...I'd want a new front/back porch..."

    My main thing, though, is that I'm looking for LAND. I grew up in the country on five acres of pure bliss...neighbors couldn't see us, we couldn't see them...and I want to move somewhere bigger (which is why we're looking near Austin), but we want to be far enough out that we're more in the country.

    We won't be making any moves until further in the summer, though. Mox is about to get a new position at work, and he wants to be fully trained for it before he considers moving to a new location (plus we want to save more money while we're at it).

    I really appreciate everyone's advice, though! My mom has been able to help me with everything but this because they didn't have to take out an FHA loan when they bought their house.

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    Default Re: FHA Mortgage Question

    ^ That's good.

    Another thing you can go pull up is all of the tax info on properties. This is a super easy way to see how much "negotiating" room these sellers have before you ever walk in the home. If you are working with a realtor, they can access this information for you (it'll tell you ALL of the mortgage info on the current owner...when they originally bought and for how much, if they ever refied and how much the current mortgage is).

    There were a couple of places where Scorpio and I pulled tax info to find that the sellers bought the place 25 years ago...had virtually NO mortgage...never updated the place (although they had plenty of equity to do so...several times) and yet were unwilling to budge in the price because "the house next door sold for $300,000". You'll hear that a lot. Don't buy it. In most cases, the house next door is newer, renovated/updated, or in generally better condition. Do your homework on the homes before you EVER put an offer in on them. We also pulled info on a house to find out that they had not paid their last year's taxes. In 2 months, their house would go into a "tax sale" and they would lose the right to sell their home without paying this off. Not a good situation to find yourselves in.

    Do your homework. And, Good luck!!

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    Default Re: FHA Mortgage Question

    Quote Originally Posted by Emily
    I was just trying to illustrate that down payment shouldn't reflect on the interest rate that much because of PMI.
    Ah, I see. It's actually kinda tricky here. If you are dealing with PMI, you are dealing with a conforming lender...subprime lenders do not do PMI. If you are dealing with a conforming lender, then your rate WILL reflect your down payment amount, along with your credit score, etc. Even if you have PMI, you are considered "high risk" if you cannot or do not want to put down 20%.

    Which is why it is so important to know about mortgages. I mean, why pay (hypothetically) 8% interest PLUS PMI when you could go to a subprime lender and pay 8.25% interest? In the long run, you would save money with the subprime lender.

    Refinancing is NOT a bad thing. You have to find a broker that won't gouge you on fees. Which is why you get a list of fees beforehand and shop the fees. You don't have to pay the highest fees at the first broker you meet with. And, just because they charge high fees does not make them better. If you are going to play the mortgage game (as opposed to just taking a 30 year fixed), the broker may have some "recurring customer" breaks they will give you. So, you pay the fees on the first visit, but on the second refi you will pay only actual closing costs (so they won't charge you points on the front). Yes, it costs money...however, if your credit score jumps from 600 to 680 from cleaning the credit and making timely payments on your mortgage for a year, then it is SAVING you money in the long run to refi and drop your rate (the rate difference between a loan with a 600 credit score and a 680 credit score will be quite dramatic...even if it's only .75 percentage points). Refi'ing and dropping the rate will pay off the cost of the refi within 8-12 months (or should...it should not take longer to "make back" what you paid in closing costs in your savings. Put the extra money that you were spending before and drop it into the "additional principal" payment options.

    There are so many different scenarios and ways of doing things that it's impossible to list them all here. But, don't rush anything. Take the time and look things over...make sure you are getting the loan that you are comfortable with and can deal with the terms of the loan.

    If you want, when you find something and have questions, you are always free to email/PM/post to scorpio or myself and ask us questions.

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    Default Re: FHA Mortgage Question

    FHA is a stupid, foolish rip-off. Rates suck, and the paperwork is atrocious. The ONLY reason a loan officer would do an FHA loan is...suprise it's VERY profitable! FHA pays brokers 4% or MORE! the average sub-prime loan payout is maybe 2% sub-prime can go no money down, FHA cannot. SP has stated income options, interest only options, allows seller financing...FHA does not. Why waste your time?

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    Default Re: FHA Mortgage Question

    Quote Originally Posted by scorpio
    FHA is a stupid, foolish rip-off. Rates suck, and the paperwork is atrocious. The ONLY reason a loan officer would do an FHA loan is...suprise it's VERY profitable! FHA pays brokers 4% or MORE! the average sub-prime loan payout is maybe 2% sub-prime can go no money down, FHA cannot. SP has stated income options, interest only options, allows seller financing...FHA does not. Why waste your time?
    I know! It's just a huge pain in the butt any way you look at it. If it isn't one thing with that stupid loan, it sure is another! We're going to do everything in our power (even if it means begging Dad to be a co-signer) to make sure we can go a different route on our mortgage.

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    Default Re: FHA Mortgage Question

    Venus

    Do not base your judgments of my understandings on the fact you do not agree with my advice.

    Having said that lets look at some numbers....













    http://www.detnews.com/2005/realesta...A01-348632.htm



    Interest-only mortgage


    • How it works: In the first three to 10 years, your payments cover only interest, not principal.
    • The risk: When the interest-only term is up, your payments could increase so much that you can't afford your mortgage.
    • Right for you if...You plan to move before the term ends, or you can count on earning more money soon.
    Option- or flexpayment ARM


    • How it works: You choose what to pay every month: the standard principal and interest, only interest or a minimum that's less than what's needed to cover the interest.
    • The risk: If you make minimum payments, the rest of that month's interest is tacked on to the loan balance , so you could easily end up owing more than your home is worth.
    • Right for you if...You need the flexibility to make smaller monthly payments once in a while -- but only once in a while.
    40-year fixed mortgage


    • How it works: You pay the loan off over 40 years instead of the usual 15 or 30.
    • The risk: You will pay more interest over the term of the loan. Plus, it takes a loooong time to build equity.
    • Right for you if...You can't afford a shorter-term loan but don't want to take on a lot of interest-rate risk.
    Piggy-back loan


    • How it works: By taking out two loans (a traditional mortgage and a home-equity loan or line of credit for the 20 percent down payment) you can avoid private mortgage insurance.
    • The risk: If the price of your house drops, you have no equity cushion, leaving you at risk of owing more than your home is worth.
    • Right for you if...You have money saved for a down payment but fall a little short of 20 percent.
    No-doc or low-doc loan mortgage:


    • How it works: This loan lets you borrow without proving you meet the usual income requirements and, in some cases, without documenting your income at all. Most lenders expect you to have a credit score of at least 620.
    • The risk: Borrowing more than you can afford. Plus, depending on your credit score and how much documentation you provide, the rate may be one-half to three points higher than an equivalent full-doc loan.
    • Right for you if...You don't earn enough to qualify for a normal loan (say, if you're starting a business), but you know you won't have trouble making the mortgage payments.
    http://money.cnn.com/2005/09/15/real...0510/index.htm


    With "creative financing" you will pay more in closing costs, interest, and fees over the life of the loan.

    As always this is my advice from what I know. Why do I not like creative financing besides the above points? Every day at work people come in looking for a fixed rate conventional mortgage because their "creative financing" is killing them. Not everyone is out to " play the game" of flipping homes for a profit. Most just want a home they can afford.

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    Default Re: FHA Mortgage Question

    ^ I disagree with your advice because it is WRONG, not because I don't "believe" what you are touting. You assume that EVERYONE that does creative financing is getting screwed. Fixed financing is not worth it because you have no room for any "play". Creative financing is a wonderful TOOL. It's the not be all/end all of financing. You are trying to scare people off of creative financing because you've seen a few people come in crying about their loans. Chances are, those people have no clue what they are doing and just do what they're told to do (which is how they got into their predicament in the first place.

    We are not out to "flip homes" for a profit. We are out to save money on our home loan. We use the "creative financing" on our own home. When the term is about to expire, we are already refinancing. But, the key here is that we know what we are doing. The people you are speaking of have no clue as to what is going on or how they got there...they were just letting themselves be lead around by the nose...and ended up losing their asses.

    This is why I tell everyone that BEFORE they buy a home, they should do lots of research into mortgages, the different products available and KNOW what their actual limit is. These products are great and can be used to great advantages, if you know your products and you know what you can afford.

    Like I said before, most people go into creative financing not knowing an ARM from a Negative AM ARM or an Option ARM and just lollydally along. Home ownership requires KNOWLEDGE and ATTENTION. I am surprised at how many people try to buy homes with neither of the requirements.

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    Default Re: FHA Mortgage Question

    On another note, your chart is a little misleading in the fact that they are counting a down payment as equity. What would happen if you took that down payment money and paid off your high interest credit card debt?

    BTW...a 20% down payment for a $200,000 loan would be $40,000. You cannot count the $40,000 that they added into the equity in that chart because it's not, technically, equity. At that rate, you've really only gained $6,225 in equity.

    Changes the whole scenario, doesn't it?

    That $40,000 could be used to pay off other debt...it could be used to invest in something that can gain you interest, buying another property...having 1 year's worth of reserves stashed away.

    And, again, you are paying INTEREST, mainly, for 15 years on a 30 year fixed.

    So, after you've had all of this explained, how exactly would you like to spend your money?

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    Default Re: FHA Mortgage Question

    <Runs over to Venus's & sits down w/paper & pencil>
    Well, I've been going to the library a lot, & reading mortgage/real estate info.
    I've found that the author Robert Irwin has some great info (from what I can gather) about these topcs. He has a website too.
    Like I said, far from an expert here, & didn't totally go over this entire thread, but many things V. said seemed to be on target (from what I read).
    I am determned to get a mortgage in 6 mo. to next year, we'll see!
    Hey, congrats on your new place, V.


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    -Eartha Kitt

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    Default Re: FHA Mortgage Question

    Equity by its definition is the difference between the market value of a property and the loan against it. In the description it says the increase of the equity does NOT include appreciation of the property value. The equity it is pointing to is just based on the payment of the mortgage itself.So why wouldn't you use the down payment in the calculation?

    It also points out that after the first mortgage, if the value of your property did not increase by a large percentage, and you needed a home equity loan you would not have much to draw from.

    If you read the chart correctly it shows in the end you are paying more over a ten year period for the exact same house.

    Refinancing in the current housing markets eats up the gains in closing costs and fees. You are going to be paying interest no matter which mortgage you choose. The question is with which mortgage will you pay less? If you crunch the numbers it is a 15yr fixed rate mortgage.

    Most of these creatively financed types of mortgages are also geared to sub-prime borrowers and then they are told to refinance. Change in the regulations of the lending industry is coming. These same sub-prime borrowers would not qualify under the new regulations to refinance. Then what do they do when they can't make their mortgage payments with raising interest rates?

    "For borrowers, the biggest risk is payment shock. Say you buy a $300,000 home, financing 100 percent of the price with an interest-only loan. In five years, if your rate rises just as your principal becomes due, your monthly payment could easily spike by 50 percent. With little or no equity to fall back on for a refinancing, you could be forced to sell quickly or even default on the loan. (What's worse, if your home is worth just 5 percent less, you'll have to come up with $15,000 to pay off your mortgage.) "

    http://money.cnn.com/2005/09/15/real...0510/index.htm

    I am cleaning up my debit. I have fixed my credit report. I am planning on purchasing a house in the next three years. I will get a fixed rate mortgage with a 20% down payment. Call me financially conservative, call me wrong, or whatever you like but that is how i see it.
    Last edited by Vamp; 04-14-2006 at 07:55 AM.

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    Default Re: FHA Mortgage Question

    I'll avoid getting in the middle of this discussion - however in fairness to all DD readers I do feel the need to point out that any financial strategy which depends on refinancing at a future date in order to prevent 'short term positives' from turning into 'long term negatives' faces a large risk of change in future circumstances. By this I'm referring to reliance on the assumption that past trends will continue in the future (i.e. increasing housing prices = higher future equity) to enable the creatively financed homeowner to qualify for a re-fi before the 'bad news' portion of their existing creative financing kicks in.

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    Default Re: FHA Mortgage Question

    Like I've said before. In order to "play the market" you have to be able to learn the game. There are a few rules that are hard and true no matter what. There are a few things that should never be done in the mortgage biz.

    The main thing is that you don't use an ARM to purchase a house you cannot afford under a fixed rate so you can get the house. With our house, we can afford to pay a fixed rate mortgage but chose to go with an ARM so we could make our money work for us in other ways. Instead of taking our $60,000 and put it where it would take tons of time and effort to get it out, we chose to invest it in other areas where it will earn interest.

    Mortgages were never meant to be gotten and forgotten. People get fixed rates because they don't know what they are doing and that is fine. However, to say that "creative financing" is bad or foolish is short-circuiting yourself, as well. You don't understand the game. Things are changing. But, as long as you stay on top of the game, nothing can happen that you will not be prepared for.

    And, the definition of equity is correct. You'll notice that I used the word, "technically". They are using it in a "loose" way. If they said that even after all of that money you put down that could have been used somewhere else to gain more interest, you were only gaining $6,000 in equity...what then? The fact is this: there is no REAL difference in equity no matter what you do. It doesn't take you longer to pay off a house using an ARM. In fact, I have 2 friends who HAVE paid off their home loans. How did they do it? By using ARMs. Because by utilizing ARMs they've lowered their monthly payments, used the money that they "saved" in monthly payments and invested that money...and then, after about 5-6 years, turned around and paid off the loan. That is what you use ARMs for. You use it to further your investments. To lower your short term payments to increase your maximum potential.

    If you are not comfortable with that, then you do not have to do it. In fact, I encourage people who are not interested in the Real Estate/Mortgage market and trends enough to keep on top of them and watch and learn about them daily to get into a fixed rate.

    But, again, it does not make the creative financing "bad". You're not comfortable with it does not make it evil or something that shouldn't be done.

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