FHA Loan
An FHA loan is a home mortgage that allows for a purchase or refinance with a low down payment. An FHA loan is designed to help those who would otherwise not be able to afford a down payment on a home, and also for those who do not qualify for other types of mortgages.
FHA will go 95% cash out for a refi note this applies to a
current active second note. In sense we are paying off a Combo Loan
into a single note. See www.efanniemae.com for the Geo Coder on loan limits. Other lending issues apply such as current note vs proposed.
An FHA loan is a great program because a low credit score does not automatically disqualify you. You can qualify with a low or even no credit score as long as you can document 1 year of timely credit payments. Exceptions can be made with strong compensating factors and a good letter of explanation.
AN FHA loan will allow someone to qualify using non-traditional credit as well. Non-traditional credit items include rental history, electric, cable, phone, and gas bills. Any other bill paid monthly can be used as well. A 1 year history of timely payment for 4 different accounts can qualify a consumer for an Fha loan with little or no traditional credit established.
An FHA loan is an excellent way to purchase a mult-unit dwelling as well. FHA allows for Owner-Occupied purchases of 2-4 unit properties with as little as 3% down. An FHA loan also allows for up to a 6% seller concession. For 3-4 unit properties, 3 months mortgage payments are required as reserves after closing.
FHA will not disqualify a refinance on a property that has been recently listed as well. Proof of delisting is required along with a letter of explanation.
A Federal Housing Adminisration (FHA) can be beneficial to many borrowers. You should consider a FHA loan if you are a first time homebuyer, can only afford a small down payment, want low monthly payments or don't have perfect credit
The FHA loan program is increasingly popular for borrowers with less than perfect credit to refinance a subprime loan which may be scheduled to adjust into an inexpensive, fixed rate FHA loan program.
If you have been contemplating buying a home, but you have credit problems, recent changes in the guidelines for FHA loans may provide the answer to your problems. Many real estate agents and sellers have traditionally been wary of accepting an offer to purchase using an FHA loan. However, FHA loan guidelines have been revised so much in the last couple of years that the real estate agent or seller you want to work with will probably not recognize the program anymore.
In the past, the FHA guidelines were much stricter on the property and caused the seller to have to pay higher fees than a conventional loan. Using an FHA insured loan often caused the closing to be delayed while arguing over seemingly silly red tape issues. However, this red tape has been almost completely unraveled over the last couple of years. If you have an agent or seller who is reluctant to accept an offer involving FHA financing, here are some of the benefits:
* Low down payment. Typically 3% of the purchase price; AND gift funds are allowed for the entire down payment, closing costs and prepaid items. These gift funds can come non-profit foundations with easy qualifying requirements.
* Seller-paid contributions for closing costs and prepaid expenses are allowed up to 6% of the purchase price. This means that a buyer can negotiate terms which will result in having to bring absolutely no money to the closing!
* The borrower is not required to have any financial reserves. You can qualify for an FHA insured loan with $0 in your checking or savings account!
* Recent FHA appraisal reform eliminated the need for minor cosmetic repairs to the property before closing. The program now allows ”as is” appraisals and no longer requires automatic inspections for termite, well or septic. These conditions were part of the red tape that aggravated sellers and agents so much in the past.
* No minimum credit score. There is an automated underwriting system called FHA Total Scorecard. If this system approves your loan, there are no further requirements to explain bad credit, pay off collections accounts or meet a set debt to income ratio.
* If the automated underwriting system does not approve your loan, the loan may be underwritten manually and the underwriter is given discretion to use common sense in the decision to approve the loan. The underwriter often does not have this discretion on conventional loans where they are usually not allowed to override the automated decision.
* No prepayment penalties. Many loans for borrowers with credit problems have significant penalties for paying the loan off within the first 3-5 years. These penalties prevent refinancing for a lower rate or for debt consolidation. FHA loans have no prepayment penalties. As a matter of fact, FHA loans allow for a program called streamlined refinancing. As long as you make your mortgage payments on time, you can refinance if rates go down without having to produce all of your qualifying documentation again.
All these factors benefit both the buyer and the seller. Without this FHA program, the market for the seller’s home would be greatly reduced. With the FHA insurance, potential homebuyers who cannot get approved for a conventional loan can get a mortgage with the same interest rates as a borrower with perfect credit and a low debt to income ratio! And they can still buy the home with no money out of pocket!
» DISCLAIMER: The information contained in this article on 'FHA Loan' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.
