One of the things I want to talk about is FHA loans. This program up until earlier this year had maybe 2% penetration into the market place. Reason for this is the influx of money, from investors, into the mortgage market thus creating a plethora of alternative loan programs that were giving borrowers more options. These loans include no income verification loans, stated income an asset loans, piggyback loans to avoid pmi, and others.
The market became very creative and helped fuel a red hot real estate market that set record sales for 5 years in row. Many people don't realize that while the market was creative in providing alternative loan programs to borrowers, lax underwriting guidelines and fraudulent activity created the majority of the mess we now see today. A severe decline in home values played and is playing a major role itself. I'm not going to talk about a lot of bad news here I think we get enough of that already from the media. Lets face it bad news makes the front page. My intent is to provide information about a old but new program that many steered away from but now is one of the only high loan to value options left.
Lets talk about the benefits of an FHA loan.
1. No minimum credit score- FICO scores over the last 15 or so years have been used heavily by lenders to determine the creditworthiness of a borrower to repay a loan. Being in the people business for 7 plus years now and pulling credit and looking over credit reports I can tell you it doesn't give a very good indication. The system is designed to give you a snapshot in time of what borrowers score is and not a trend of creditworthiness. I say this because I've pulled credit on someone with a 700 credit score and 6 months later they have one late payment and their score dropped to 550. Now is that a good indication of the borrowers ability to pay back a loan? Let me answer that for you NO! With FHA you don't need a minimum credit score to qualify however common sense is needed here. A 400 credit score is highly unlikely to get approved. Now this year FHA has added risk-based premiums to their upfront mortgage insurance and that is credit score driven but overall there is not a minimum criteria for a score to qualify.
2. Low Down payment - With FHA, up until Oct 1, 2009, only has to contribute 3% down payment. After October 1 it goes up to 3.5%. The 3% can come from a relative as a gift or borrowers own funds. This is powerful because right now in the conventional world you need a minimum of 5%, if the property is located in a declining market as indicated by the mortgage insurance companies, you'll then need 10% down. Not to mention you need over a 680 credit score to get the mortgage insurance approved. You might be approved for loan but can't get the insurance. Which moves me into my next benefit.
3. Low mortgage insurance - FHA handles their own mortgage insurance so if you are approved your loan will have the mortgage insurance on it. FHA mortgage insurance also is at a lower expense then conventional and if you put 10% and take out a 15 yr fixed loan no monthly mortgage insurance is required.
4. No income restrictions - For the first time home- buyer group this is huge. Most first time home-buyer programs are designed to meet the needs of low to moderate income borrowers. Well if you make more than the income limit these programs are unavailable to you. FHA has no income restrictions to qualify.
5. Purchase or refinance new or existing 1-4 unit homes - This is a big plus. You can still get 97% on the purchase of a 1-4 unit primary residence. Conventional requires more down payment on multi-unit properties. On cash out refinances there are limitations to loan to value.
6. Financing for manufactured homes - With the credit tightening in the mortgage market some areas have an ample supply of manufactured homes. The same 97% guidelines apply on these but they must meet FHA guidelines and be on a permanent foundation.
7. You can use a non-occupying co-borrower - This is a forgotten rule but if you can have a non-occupying co-borrower, as long as they are a relative, sign on the loan and the borrower can still get the maximum financing of 97%. This is limited to 1 unit properties if the ltv is over 75%. Certain restrictions apply.
These are just a few of the many benefits to FHA financing. It provides a solution for many borrowers needs and helps them fulfill the American Dream of owning a home. I've been in the industry over 4 years now and I love providing solutions for my clients to purchase their first or next home. I get great joy out of what I do.
Stay tuned for more of my blogs and industry news. I've never been a big fan of bad news I like to spread good news but we are facing problems in the housing industry but i believe it when I say its a cycle and we'll survive this storm and come out of it with better times. Remember the market is what you make it. There are still many opportunities out there you just have to change your marketing strategy, do things a little differently, try something new to see what works and what doesn't.
Never become victim of all the bad news because you can sure find a lot of it. Now is the time to become more proficient at what you do and become a trusted adviser to your clients and business partners.
God Bless
"Whether you think you can or you think you can't, either way you're right"
Henry Ford
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