Tuesday, May 20, 2008

Like an Old Shoe- The FHA Loan is a Good Fit

You hear so much about FHA (Federal Housing Administration) loans lately? Why? Because sometimes an FHA loan is the best fit for your mortgage needs…

FHA (Federal Housing Administration) loans are really a hot product right now. Mortgage companies and brokers are scrambling to become approved FHA lenders left and right. However, FHA loans have been around for a long time, helping a lot of people get into homes. Some people say it’s become the new “sub prime” loan. What that really means is that if you can’t qualify for a conventional loan, FHA’s guidelines are more flexible than some loan products. And because of this point, the FHA loan fits a lot of people’s needs and goals.,

When should you consider an FHA loan? One great fit for an FHA loan is if you are buying a property and are looking to put as little money down on the property as possible. I had one couple that had plenty of money and excellent credit, but the seller of the property they were buying was conceding “nada”, and all the funds for closing were being footed by this couple out of their own check book. They were retired and relocating. Their goal was to spend as little money as possible, but still get into the home they desired. FHA fit their needs perfectly, because they were able to finance 97.75% of the loan amount. Their rate was competitive and their mortgage insurance was reduced. Also, they had plenty of money left over to buy plane tickets to visit the grandkids. Be aware, however, there is a loan limit for the FHA loan, so not all properties will qualify. But the limit is pretty generous.

Many times people have very little cash to put down on the property, but they have very nice credit. Again, FHA fits their needs greatly. Since FHA can pretty much offer the lowest cash necessary to close available to many, it’s easier for a buyer to negotiate for the seller to make a concession to lower or even eliminate the buyer’s cash out of pocket. Naturally, the seller has to be ok with what they are netting from the sale of the property. And the lender will make sure the house is worth the contract price. But FHA allows the seller to pay up to 6% of the buyer’s closing costs and on top of that, will let them gift the buyers the minimum required 3% investment through a down payment assistance program. So you see, you can get into a house with little or no money if you qualify for an FHA loan.

Another great thing about FHA? It doesn’t have any major pricing hits for a minimum qualifying credit score of 620. In the conventional loan world, there typically are pricing increases for loans every corresponding 19 point increase in credit score. Most secondary lenders who offer FHA loans will only give you a pricing hit if you dip below a 620 credit score.

And what if you have a credit score below 620? If you don’t get an automatic underwriting approval, you can possibly obtain a manual approval. What’s a manual approval? It’s when a real live human being looks at your file, and considers actors other than your credit score to qualify you. You may have to show you’ve paid other bills that don’t appear on your credit report on time for the past year. These types of bills would perhaps be your cell phone bill, utility bill, rent, or car insurance premium. Couple this evidence with a strong, hard explanation of why your credit score is less than perfect, and you still have a good chance of loan approval. But, be aware that your minimum credit score must typically be a 580 or higher.

Another nice fit for an FHA loan? Manufactured homes. You can still obtain an FHA loan to buy a new or refinance an existing manufactured home. Of course, there are stringent guidelines regarding the property that must be met, but FHA is still in the manufactured home market. In fact, it’s one of the few product types offered on the secondary market that still will endorse a manufactured home loan. The VA will too.
So, if one of the above mentioned situations reflects your scenario, make sure you investigate your options with FHA financing. You won’t be sorry you did. You know what they say? If the shoe fits - wear it.

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