FHA Mortgages Help Home Buyer's With Past Credit Problems
If you have been contemplating buying a home, but you have experienced credit problems, recent changes in the guidelines for FHA loans may provide the answer to your problems. FHA is not actually a new program, but the guidelines have been revised so much in the last couple of years that the real estate agent or seller you are trying to work with will probably not recognize the program anymore.
The initials ''FHA'' stand for Federal Housing Administration. The FHA is a part of the Department of Housing and Urban Development (HUD). When you see HUD homes for sale, they are foreclosed homes that were financed with mortgages guaranteed by FHA.
The FHA program was started in 1934 under the National Housing Act with the stated purpose of opening up credit and home ownership opportunities for potential home owner's who may have had credit problems, have a limited credit history, or lower income than allowed on conventional mortgages
The FHA program accomplishes this goal by providing insurance which will pay off the loan if the borrower defaults. Because of the guarantee of FHA mortgage insurance, the lender can take more risk approving mortgages for borrowers who don't fit into conventional loan programs.
FHA insured mortgage guidelines were designed to accommodate the situations faced by first time home buyers, but any borrower without an outstanding FHA loan guarantee is eligible to use FHA to purchase or refinance. The standard FHA program is not for purchasing non-owner occupied investment property.
More experienced real estate agents and property sellers are often reluctant to recommend or accept FHA financing. This is due to the many horror stories they have heard, or bad experiences they have had due to past extremely strict property guidelines set by HUD. In the past, FHA financing often resulted in significant closing delays while ridiculous underwriting approval conditions were being met. Guideline changes have substantially removed this problem.
If you have an agent or seller who is reluctant to accept an offer involving FHA financing, here are some of the benefits you can give them:
1. 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.
2. Seller-paid contributions of up to 6% of the purchase price can be applied to closing costs and prepaid expenses. You can negotiate terms and conditions which will require bringing absolutely no money to the closing!
3. FHA requires no financial reserves at the time of loan approval. A borrower with no savings, and no money in checking will still meet the requirements.
4. FHA has reformed the appraisal guidelines to get rid of the need for minor repairs that must be completed prior to closing. HUD now allows as-is appraisals. Expensive termite, well and septic inspections are no longer automatically required before closing. Such requirements were the type problems that often delayed closings and angered home sellers in the past.
5. 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.
6. 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 not allowed to override the automated decision.
8. No penalties for paying off the loan early. Most of the loans available for problem credit borrowers include expensive penalties for paying the loan off within the first few years. These penalties prevent refinancing or selling the home. FHA loans do not have any prepayment penalties. FHA guidelines set up a program called streamlined refinancing. As long as all mortgage payments have been paid on time, no qualifying documentation is required in order to refinance the mortgage should rates go down.
FHA loans provide extensive benefits for both buyers and home sellers. There would be many fewer potential buyers in the market without the program. FHA allows borrowers with past credit difficulties to get the same mortgage rates as perfect credit borrowers with no money out of pocket to buy the home.
Article Source: http://www.search-raven.com
About the Author
Loan originators today need to become experts on FHA guidelines in order to thrive in today's mortgage market. An FHA mortgage is the perfect way to profit by helping credit challenged borrowers own a home with low fixed rates.
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by: CarlPruitt
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