Choosing your FHA loan equity loan involves studying with your banker the best choice between a fixed rate loan and a rateable loan, and determine with him a borrowing period based on your repayment capacity.
- LCL sheds light on all these notions.
- Fixed-rate or adjustable rate property loans: what are the differences?
- Fixed rate property loan
- With a fixed rate FHA loan, the borrowing rate is set once and for all when signing the FHA Loan offer.
Adjustable-Rate FHA Loan
With an adjustable rate loan (also referred to as a variable rate mortgage ), the rate announced in the loan contract changes according to a benchmark (typically 12-month Euro-zone interbank rate, 12-month Euribor ). The rate revision takes place according to the periodicity provided for in the FHA loan offer, depending on the trend of the benchmark, upwards and downwards. In order to avoid a too large increase in the rate during the repayment period of the FHA loan, a mortgage can be offered to you at a revisable rate called “cape”, that is to say, the rate of which can not exceed a certain ceiling In your FHA loan agreement.
Real Estate Credit: How Much Repayment?
For the same amount borrowed, the longer the term of your mortgage, the lower your monthly payments. But in return, the amount of interest due on the capital will be greater (as well as the cost of your credit) when the repayment duration increases.
Borrower Insurance (Death, Disability, Loss Of Employment).
Underwriting a disability death insurance ( DII ), which protects the borrower in the event of death, disability or loss of employment, is often required by banks to grant an FHA loan. It permits the payment by the insurance company of the principal and interest remaining due by the borrower in the event of the death of the borrower or total and irreversible loss of autonomy.
On the other hand, the underwriting of a job loss guarantee is generally left to the discretion of the borrower.
The Delegation Of Insurance.
In most cases, the bank will offer you to take out a group insurance contract that it has previously negotiated with an insurer on behalf of all its clients. If this contract does not suit you, you can propose to the bank the purchase of an individual insurance with the insurer of your choice, by requesting a delegation of insurance.
The bank can not refuse a contract of individual borrower insurance provided that the contract presents a level of guarantee equivalent to the group insurance contract that it proposes. The equivalence of guarantees is assessed in the light of the list of criteria of requirements adopted by each bank, in particular, according to its risk policy. Each bank publishes a list of its requirements criteria on its website.
The Cost Of Borrower Insurance.
When you take out a borrower insurance contract, pay attention to the annual effective rate of insurance (TAEA). The TAEA, which translates into a percentage calculated on the outstanding capital of your FHA loan, represents the actual cost of borrower insurance in relation to the overall cost of your FHA loan.
What Is The AERA Convention?
The AREAS agreement (if Insurance and Loans with Aggravated Health Risk) is to develop an overall plan to broaden in the best conditions, the access to borrowing and access to Insurance of persons with an aggravated health risk.
Note: there is a right to forget about access to insurance and borrowing of former patients with serious pathologies. This allows them to take out borrower insurance without having to report the serious illnesses they have suffered if cured for 10 years at the most (5 years for cancers before the age of 18).
Real Estate Loan: Mutual Guarantee Or Mortgage.
To guarantee the real estate loan it grants you, the bank will apply for a guarantee: it can be a classic mortgage or a lender’s privilege. If you should no longer be able to repay your loan, these guarantees will allow the bank to sell your home in order to recover the amounts lent on the sale price. In return, you must pay a mortgage registration fee, determined by the amount of the loan.
The Mutual Guarantee.
Alternatively, the bank may offer you to have your loan secured by an individual or a specialized agency (mutual guarantee organization) that will guarantee the bank in case of default on your part.
The cost of the mutual bond is slightly lower than that of a mortgage (2 to 3% of the amount of the loan for the mutual bond, as against 3 to 4% for the mortgage), especially since the borrower Does not have to bear the costs of release of the hypothecary guarantee due in the event of the sale of the property before full repayment of its loan or within one year after the last maturity of the loan.
For more information, see the sheet “Mortgage or bank guarantee?” (Notaires de France) .
Real Estate Loan Application Fees.
In consideration of the review of your credit application, the bank may charge an application fee.
Total cost of mortgage: the annual percentage rate of charge (APR)
To allow you to compare the rates of the different offers that are made to you, the offer of a mortgage must indicate the “annual percentage rate of charge” (APR) of your loan. It corresponds to the total cost of your credit, since it includes, in addition to the amount of interest itself, all the expenses related to its obtaining:
- Costs of lodging of guarantee,
- Disability insurance (DI) insurance premium,
- Commissions, if any, paid to a dealer who put you in contact with the bank,
- Any other costs are known at the time of application.
- The delivery of a loan offer: period for reflection
Prior to the issuance of a mortgage, the bank is obliged to give you, as well as to each co-borrower and surety, a credit offer whose content is regulated. This offer must be sent to you by post. It is valid for 30 days from receipt.
You have a mandatory minimum period of 10 days to consider the bank’s proposal. It was not until the 11 the day following the date of receipt you can the take. To accept it, you (and each co-borrower and surety) must return a copy to your bank by mail, dated and signed.
Effect Of Acceptance Of Loan Offer.
Once accepted, the loan offer becomes your loan contract and engages you definitely.
However, if the transaction for which you have applied for the loan (acquisition, construction, works exceeding € 75,000) is not completed within 4 months of your acceptance, the loan offer lapses Are more committed.
If you have requested several loans to carry out the same transaction, refusal of one of these loans, representing at least 10% of the borrowed capital, would relieve you of all the other loans that you would have already Been granted.
Suspension Condition For Obtaining The Mortgage.
Once the financing of your home is insured by a mortgage loan, whatever its amount, the acquisition is necessarily concluded under the condition precedent of obtaining this financing.
In practice, make sure that the promise of sale contains the main characteristics of the financing envisaged: amount of the personal contribution, loan amount, maximum rate, duration of the loan, the periodicity of repayments … The deadline for obtaining the loan is ” At least 1 month but the promise of sale may provide for a longer period (usually 3 or 4 months). If the loan is refused within this period, the purchaser may withdraw from the sale and recover the part of the price already paid.