FHA Home Loans for High-Cost Properties

The Federal Housing Administration, or FHA, insures loans through its diverse programs for borrowers seeking to purchase a new home, renovate a fixer-upper, refinance their current mortgage, or make their current home more green. The flexibility offered by the program combined with its low interest rates and low cash investment makes FHA loan programs one of the easiest for borrowers to be approved for.

These have long been a favorite of first-time buyers and those with low- to middle-incomes.

Is FHA still beneficial if I’m purchasing a more expensive home?

The FHA uses a system of loan limits that vary by county. The average loan limit is $271,050 for a single-family home and $521,250 for a four-family home. But for more high-end real estate markets, such as those found around major cities, the loan limit can reach as high as $729,750 for a single-family home to $1,403,400 for a four-family home. Even for borrowers wishing to purchase a more expensive home, a FHA loan is still one of the most rewarding loan programs available. With a FHA loan, eligible borrowers will find benefits they would rarely receive with a conventional loan such as:

-Competitive interest rates

-A down payment of only 3.5%

-Regulated closing costs

-Lenient debt to income ratios

What are basic FHA loan requirements?

Many borrowers find FHA loans are easier to obtain than conventional loans. They also come with competitive rates. While the FHA insures a portion of each loan, it doesn’t actually issue them. Borrowers will have to meet the conditions and requirements of their lender as well as those set forth by the FHA. In general, the program expects:

-2 years of steady employment without income decreasing

-a minimum credit score of 620

-a clean credit report two years after a foreclosure or after filing for bankruptcy

What other options do I have for financing?

When a borrower wishes to purchase a home for greater than the FHA loan limit in their area, they  have the option to use the FHA loan in conjunction with other financing options.

There Might be Ways to Save Your House From Foreclosure

There are several options you can pursue when you are behind on your home loan and you want to that me include a short sale.

An attorney can help you work through one or more of these alternatives.

Reinstatement: If the reason you have missed your payments was temporary and you’re now able to continue paying your mortgage, you may be able to reinstate your mortgage. You will probably need to bring your mortgage obligation up to date, late fees and penalties, and legal fees due up to the date that you reinstate.

Forbearance: If you would like to reinstate your home loan but the one-time payment is too high, there’s a chance that the bank will permit you to arrange a repayment schedule, or forbearance. If so, the bank will allow you to pay your debt over a particular time period or will tack the extra debt onto the end of the mortgage.

Rent The Property: In a few cases a property owner will have payments low enough to permit him/her to rent the property and pay the the difference between the rent received and the home loan payment out-of-pocket.

Refinance: If you have sufficient equity and income, and your credit has not suffered too large a hit, you may be in a position to refinance to a lower rate or better terms or get enough cash out to cover payments for a while.

Mortgage Modification: In cases where householders do have the means to afford their payments, or a payment close to their payment, banks may qualify the borrower for a mortgage modification.

Short-Refinance: The relatively new phenomenon of a short refinance illustrates just how far some mortgage corporations are prepared to go to avoid foreclosing on properties. This process involves the refinance of a home with a decrease in the principal balance and frequently the interest rate also. While relatively rare, if this opportunity is available, a lawyer can help you arrange a short-refinance.

Deed-in-Lieu: Frequently called a “friendly foreclosure,” deed-in-lieu occurs when the householder gives his deed back to the bank. In exchange for a non-contested repossession the banks will often give up their inherent legal right to a deficiency judgement; nonetheless, in most cases a short sale is more useful to the house owner. It is still a form of foreclosure and will have an impact on your credit as such.

Bankruptcy: Insolvency may allow the home-owner to rearrange his debt and keep his property. An attorney will help you with an insolvency.

Understanding Bank Loan Covenants in Real Estate

Bank loan covenants are basically used to establish certain measures in order to make sure that your organization remains healthy financially and, most importantly, to make sure that the investment made by the banks remains protected. Loan covenants are categorized into two broad types, namely financial covenants or restrictive covenants, which can be further classified into affirmative or negative.

When it comes to affirmative covenants, your organization will be required to meet up with certain requirements imposed by the lending bank, such as maintaining a minimum level of profitability, revenues, or liquidity. The main aim of negative covenants is to hold you back from performing certain actions, like including more debt, replacing top management, or making more investments, without approval from the bank.

Following are some of the major loan covenant types that you will come across when taking out a business loan from a bank:

Financial Covenants

Financial covenants are typically restrictions established on certain cash flow items, income statement, or balance sheet. These types of covenants happen to be the most widely and commonly used types when it comes to business installment loans for bad credit agreements. In general, a financial covenant assigns a minimum level of liquidity or equity that has to be maintained by the borrowing organization.

Operating Activity Covenants

These covenants dictate the way you operate your business. Most of these covenants will require you to continue operating your business, abide by the laws and regulations, and regularly make business tax payments. Some of these covenants might prevent you from making use of the proceeds from your business, like your business capital and profits, for specific purposes without approval from the bank.

Preservation of Collateral or Seniority Covenants

These covenants will require you to properly maintain the collateral which you have pledged to obtain the loan proceeds and also to ensure that the senior lien position of the bank remains intact. You will have to maintain your equipment and property according to the standards set by the bank, and in some cases, you might be required to take out casualty insurance as well.

Cash Payout Covenants

Cash payout covenants restrict you from transferring wealth with any other co-owners of your firm. These payments, in general, restrict prepayment of debts, dividends, and also prepayment of your bank loan. Such covenants can even prevent you from buying out a shareholder or partner, in the event of his or her death.

Management, Control and Ownership Covenants

Management, control and ownership covenants confine the structure of governance of your firm, holding you back from merging with other companies, transferring the ownership of your business, consolidating your business, or changing your board or management without clear approval from bank.

Good news for you to know is that you can negotiate covenants with your bank before you proceed with signing your loan agreement. But remember that once you sign the agreement, you must comply with the points mentioned in it, without any second thoughts or disputes. Therefore, it is important that you completely go through and understand what is given in your covenant before signing the agreement.


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