The Federal Housing Administration (FHA) program first began in 1934 in an effort to encourage home ownership despite the difficult economic times of the era. Just like todays economic times, options for borrowers with less than perfect credit is critical to substain an economy as the housing market plays a large factor in the economy in general. The FHA program enables consumers who may not qualify for a standard loan to obtain the financing they need to purchase a home without income limitations.

FHA loans differ from typical loans in that they are insured by the Federal Housing Administration, which is a part of the Department of Housing and Urban Development (HUD). Because this insurance, both up-front mortgage insurance of 1.75% for purchase transactions, and .55% per year divided into monthly payments, reduces the lender's risk on the loan giving lenders a greater flexibility with regard to approving loans.

For example, FHA loans are not credit-score driven, so a client may be able to obtain a loan despite having had credit problems or even a bankruptcy in the past. Although FHA does not require a borrower to have a minimum credit score, lenders have developed underwriting overlays where a borrower needs at least a 620 score while conventional requires at least a 660 to even obtain a loan over 80% and forget about 96.5%. A bankruptcy with FHA loans are far more lenient than conventional loans with guidelines specifying that a bankruptcy must be discharged at least 2 years ago with some exceptions made for borrowers having a bankruptcy discharged 1 year ago under certain circumstances.

Unlike conventional loans, which have large loan level pricing hits for less than perfect credit, FHA loans have minimal loan level pricing hits for lower credit scores. For example, a borrower with 680 credit scores trying to purchase a home with 10% down would have a loan level price hit of approximately .75% which would be either paid in the form of points or by taking an increase in rate.  Alternatively, an FHA loan would have no loan level price hits at all in the same scenario.

For consumers that do not have a traditional credit history, it is still possible to obtain financing by documenting payment histories on items such as rent and utilities. Alternative credit history can not make up for a poor credit history meaning if you have credit history with missed payments and collections with a score less than 620, you can not provide alternative trade lines such as rent history, cable, electric, etc with a  good payment history to make up for the poor trade lines.

FHA loans also provide added flexibility when it comes to closing costs and the down payment. FHA allows for the seller to pay up to 6% of the purchase price towards your closing cost opposed to conventional loans only allowing 3%. The minimum down payment for FHA loans is only 3.5% while conventional loans require at least 5%.

The FHA down payment is extremely flexible and  may be obtained through many different facets. To list a few, a gift from a family member, down-payment assistance programs, collaterilized loans, and employee assistance plans. You may contact me for a complete list of down payments acceptable by FHA. FHA loans are processed just like any other loan, opposed to the old way where there were FHA inspections and god forbid if there is a stain on the carpet! Over all FHA loans provide a wonderful opportunity for consumers who are seeking to achieve home ownership!

Joshua Lerette - The Tampa Bay Mortgage Pro
Innovative Mortgage Services, Inc.
www.TheTBMortgagePro.com
Josh@TheTBMortgagePro.com
727-488-7355

Joshua Lerette, The Tampa Bay Mortgage Pro, is a mortgage specialist in St. Petersburg, Florida providing financing solutions for homeowners and homebuyers alike. The Tampa Bay Mortgage Pro specializes in First Time Homebuyer programs utilizing FHA, VA, and the USDA Rural Housing Loan.