FHA loans

An FHA loan is insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. Available to all buyers, FHA loan programs are designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.

FHA loan programs are particularly beneficial to those buyers with less available cash. The rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans.

Some of the other benefits of FHA financing:

• Only a 3 percent down payment is required.
• Closing costs can be financed.
• Lower monthly mortgage insurance premiums and, under certain conditions, automatic cancellation of the premium.
• More flexible underwriting criteria than conventional loans
• FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of mortgage).
• Loans are assumable to qualified buyers.

VA Loans

VA guaranteed loans are made by lenders and guaranteed by the U.S. Department of Veteran Affairs (VA) to eligible veterans for the purchase of a home. The guaranty means the lender is protected against loss if you fail to repay the loan. In most cases, no down payment is required on a VA guaranteed loan and the borrower usually receives a lower interest rate than is ordinarily available with other loans.

Other benefits of a VA loan include:

• Negotiable interest rates.
• Closing costs are comparable and sometimes lower – than other financing types.
• No private mortgage insurance requirement.
• Right to prepay loan without penalties
• The Mortgage can be taken over (or assumed) by the buyer when a home is sold.
• Counseling and assistance available to veteran borrowers having financial difficulty or facing default on their loan.

Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed in the loan amount.

A VA loan can be used to buy a home, build a home and even improve a home with energy-saving features such as solar or heating/cooling systems, water heaters, insulation, weather-stripping/caulking, storm windows/doors or other energy efficient improvements approved by the lender and VA.

Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.

The Federal Housing Administration is an agency of the federal government. The FHA insures private loans issued for new and existing housing, and for approved programs for home repairs. The FHA was created by Congress in 1934, and in 1965 became part of the Department of Housing and Urban Development’s Office of Housing.

The FHA’s mission in the present day includes offering help borrowers get the amounts they qualify for, and to assist lenders by reducing the risk of issuing loans. To get situation-specific information and advice on how you might be able to take advantage of an FHA-insured loan, you’ll need to contact us and get started.

I have credit problems; will this hinder my chances of getting an FHA loan?

The FHA recommends a Credit Repair program for anyone who fears being denied a loan as a credit risk. We offer an in house credit evaluation and restoration program.

You should, as a rule, be in a satisfactory payment situation for at least one year before applying for any FHA loan program. FHA is usually pretty lenient on “OLD” collections/charge offs as long as you are able to provide a good explanation of what caused them.

Our credit counselor can address issues such as income-to-debt ratio, how to maintain satisfactory payments for the required time and challenging unfair or erroneous entries on your credit report. The FHA uses common sense Underwriting, call 972-422-9016 x 500 or click here today to get started.

What kinds of information will I need to gather to get started with the FHA?

The FHA Underwriter will ask for a lot of information, which will go on your loan application. Be sure to ask your loan officer for a complete list of required data and give yourself plenty of time to gather the information. Click here to download a list of normally required documents.

You will need to provide the FHA with a wide range of details; this includes all the addresses where you have lived in the previous two years, your employers name and addresses for the last two years, plus the amount of your Gross Monthly Salary. If you have had multiple jobs over the last twenty-four months, you will need your W2s for all of them.

If you are Self Employed you will need your income tax forms submitted for the last two years. If you don’t have copies of your W2s, you should contact your employers for assistance. If you need replacement copies of your income tax returns, go to IRS’ site and follow the instructions on how to order replacements. A tax transcript is free of charge, and copies of actual tax returns cost around forty bucks.

1. Low out of pocket requirements – You can put as little as 2.25% of the sales price down. That down payment can be a gift and can even be funded by the seller.

2. Flexible Underwriting guidelines and lower credit score requirements – The underwriting process for FHA is not as cut and dry as it is with conventional guidelines. FHA will accept common sense explanations in some cases.

There is room for credit blemishes when using the FHA. They will not penalize you for something that happened 4, 5, 6, or more years ago. Life happens and sometimes financial hardships do to. At Southwest Funding we understand that issues arise and we know how to address them. We are normal people too, therefore we understand. If for some reason you are not approvable now we will help you map out a plan that when implemented will result in an approval in the future!

Call or click here today to get started. 972-422-9016 x 500

• For the short version just read the next 3 lines, if you want more… keep going.

I can still write FHA Purchase Loans without restriction at a 620.

I can still write FHA Refinance Loans without restriction at a 640.

Case-by-case basis (restrictions: not normal FHA guidelines) I can still write FHA Purchase and Refinance at a 580

Now the part I feel is important but will probably only be read by a few over achievers…

The answer to that question: “What is the FHA Score now?” It depends on who you ask!  No kidding there is not a definitive answer that covers all the Banks, Brokers, Wholesale or Correspondent Lenders.  They all make their own rules!  (Not really but they act like they do)

If you ask The Department of Housing and Urban Development – the overseer of FHA, they’ll tell you: FHA has never had a credit score minimum.  What how can that be?  If FHA doesn’t have a minimum then why do the banks and lenders impose them?

First we have to understand what FHA really is…its a guarantee, it’s insurance.  The FHA doesn’t actually own the loan or lend the money.  The FHA protects the “owner” of the loan not the borrower.

The owner of the loan is far removed from the loan officer, underwriter, bank or wholesale lender.  More often than not he loan is packaged as a security instrument and combined with a ton of other loans and sold in bulk on the open market as a “Mortgage Backed Security”

Now we need to understand the flow of a loan once it’s closed: (I really wish I knew how to make a flow chart on here)..kind of cave man like but I hope you get the idea…

OK so now we know that the loan ends up in the same place, regardless of where it’s originated.  Right?

Now back to the minimum score requirement…the reason why the Broker says they have a minimum score is because the Wholesale Lender imposes a minimum on the Broker.  The reason why the Wholesale lender has a minimum is because the Bank/Correspondent Lender imposes a minimum on them and so on….  For many the minimum imposed is tied directly to past loan performance. 

(here comes the answer) 

And ultimately the minimum is forced by the Bank/Lender that is selling the loan to the open market.  The bank that is involved has performance guarantees in place with the investor that is packaging the loans.  If the loans don’t perform to the set standard the bank must cover the difference.  If their performance slips too far….they need to put higher quality loans in the pool to bring up the performance level of the whole pool. 

Here is my FINAL ANSWER: Depending on who the “END” investor/bank is that is why you are being told “The FHA Mimimum Score is….”

I really hope this helps, I’ll be glad to discuss it further with anyone that would like to.  Feel free to comment below.