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FHA guidelines provide substantial credit flexibility and other benefits to borrowers.
FHA loans are not score driven. Instead, they are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they're generally going to be credit-eligible for an FHA loan. The FHA guidelines are forgiving about circumstances that many other lending programs, including conventional, are not favorable towards.
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The FHA states that a borrower, recovering from a Chapter 7 Bankruptcy, can be eligible for an FHA loan two years after being discharged. To be eligible for an FHA loan after a foreclosure, a three-year wait time is required after being discharged. If the borrower has filed for a Chapter 13 Bankruptcy or is in a consumer credit counseling program (where the borrower has re-established a negotiated repayment term based on their credit items), and has been on the plan for 12 months making consistent payments on time, the borrower will be eligible for an FHA loan.
Automated Underwriting: Capability to Reach Higher Ratios
Automated underwriting is a valuable tool that allows you to qualify borrowers at higher ratios, therefore allowing them to buy a larger home for the same amount of money, combined with low interest rates available through the FHA. However, it is not available to most high LTV first time home buyer loan programs, such as the emerging markets national program and other programs from non-conforming lenders.
If the borrower has a clean credit profile and decent asset reserves, it is not uncommon to see LTV ratios as high as 50%, or higher, approved through an automated underwriting system for FHA-insured loan programs.
Source of Down Payment Flexibility
An FHA-insured loan allows a wide variety of assets to be used to cover the buyer's down payment and closing costs. FHA guidelines require a 3% minimum investment from the borrower; however, those funds can be from a gift or from a variety of other sources. The FHA considers gift funds to be the same as if they were the borrower's own funds truly seasoned for sixty days in the borrower's account, or proven to be from other eligible sources. You also have the option of using down-payment assistance charity programs like The Nehemiah® or AmeriDream® down payment assistance programs. Use of charity fund programs allow the buyer to receive a gift for the down-payment immediately prior to closing, and then the amount of the gift plus a small service fee is collected from the seller immediately after closing. This is a legal way of funneling money from the seller to the buyer that is acceptable to HUD.
FHA guidelines also allow fund sources such as mattress money, or lease option credits used, as they are lenient about how the borrowers can procure the down payment money. As an added bonus, the FHA is very liberal about what they will let the seller pay in the way of the buyer's closing costs and pre-paid items. The seller can pay up to 6% in concessions towards the buyer's closing costs, pre-paids and discount points.
Great Rates and Low Monthly Mortgage Insurance
A distinct advantage of an FHA insured loan, as compared to a conforming loan, is great interest rates and lower monthly mortgage insurance (MI). Depending on the lender, standard FHA loan interest rates are usually better than a conforming 30-Year Fixed loan. Also, the mortgage insurance premium on any FHA loan is only .05% per year, with the exception of 15 year loans with less than 90% LTV that have only a .025% annual MI premium. Compared to a conforming loan, this is substantially less expensive than most of the high LTV conventional programs in which the mortgage insurance and premium could be as high as 2.87% per year.
Safest ARM Currently Available on the Market
FHA guidelines give you the option of doing hybrid Adjustable Rate Mortgages (ARM), including a 3/1 ARM and a one year ARM that has the lowest adjustment caps of any ARM in the industry. Both the FHA hybrid ARM options and the FHA one year ARM options have interest rate adjustment caps of 1% per year and 5% over the life of the loan compared to standard conforming loans in which the caps are usually set at 2% and 6%, respectively. They also tend to have a much lower margin compared to the standard treasury ARM options. The loan margin in a conforming loan is usually 2.75%, whereas FHA loans generally have a 2% margin depending on the lender and program.
Property Types Allowed
Another advantage of an FHA loan program is the variety of properties that can be used. While FHA Guidelines do require that the property be Owner Occupied (OO), they do allow you to purchase condos, planned unit developments, manufactured homes, and 1-4 family residences, in which the borrower intends to occupy one part of the multi-unit residence.
Streamlined Refinance and Assumable Loans
One of the most important advantages of an FHA loan is the ability for the loan to be assumed. This gives the buyer a significant advantage in a high interest rate market in that anyone qualifying for a loan through their existing lender could come in and assume liability for the loan and replace the borrower as the owner of the property.
FHA loans are eligible for streamlined refinance, a program HUD offers that allows the borrower to easily refinance the loan to reduce their interest rate and lower their monthly payment. As long as they are current on the loan, they are generally eligible for a streamlined refinance with no additional credit, income, or asset documentation required. This feature makes it very easy to refinance an FHA loan.
How to Get Started
Visit one of the following web sites to learn more about FHA loan programs:
- www.hud.gov - FHA/HUD official government web site.
- www.hudclips.org - HUD's official repository of policies, procedures, announcements, and other materials.
- https://entp.hud.gov/clas - Online access to request an FHA case number, verify a borrower's credit, reassign an appraiser, identify and correct data on the closed loan, transfer pipeline cases, add/change/terminate an underwriter, transfer servicing, submit default reports, submit HMDA reports, and more
- www.federalhousingauthority.com/ - Unofficial FHA web site with a lot of good information.
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GE to Acquire Stake in Panama Bank (AP)
AP - Diversified conglomerate General Electric Co. said Thursday that its consumer finance subsidiary would acquire a 49.99 percent stake in Panama's BAC International Bank Inc. for an undisclosed sum to boost its presence in the Central American financial services market.
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Reuters - Average U.S. interest rates on 30-
and 15-year mortgages rose for the first time in the last six
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Block to Settle Suit Over Loan Program (AP)
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Consumer Borrowing Increases in March (AP)
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Greenspan Warns on Fannie, Freddie Again (AP)
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Friedman Billings Ramsey 1Q Income Drops (AP)
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Dow Ends Up 122 Points As Oil Prices Skid (AP)
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Regulator Probe Lenders on Discrimination (Reuters)
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Spitzer is investigating mortgage lenders to see if they
discriminated against minorities by charging them higher
interest rates and fees, a spokeswoman for the attorney
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Amazon Posts Lower Profit, Stock Slips (Reuters)
Reuters - Amazon.com Inc. on
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struggled with higher gasoline prices.
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