8 Simple Rules For FHA Financing

There has been a lot of talk lately about the resurgence of the FHA loan program.  It meets many of the needs of borrowers who may have qualified for sub-prime mortgages.  Here are some basic guidelines to consider with the FHA option for your clients:

• FHA requires some credit: In spite of the notion that FHA is an easy program, buyers still need to have some credit.  This can be as simple as credit reference letters from utilities, though, so don't get too worried.
• FHA allows some collections: For buyers with a few minor collections, it is possible to get by without paying them off, if they have other strong credit.
• FHA requires income documentation: Unless self-employed for a substantial period of time (usually 2+ years) and diligently reporting all income, it can be very difficult to get an FHA approval for self-employed clients.
• FHA has property requirements, but they're easier than you might think: FHA property guidelines have become easier: handrails and peeling paint are less problematic, but major systems, like heat and water, need be working at inspection.
• With FHA, you may not need a down payment: At present, FHA allows down payment money to come from several sources: 
  • Borrowers savings
  • Gift from Family
  • Grant / Loans from First Time Homebuyer assistance programs
  • Gift from Non-Profit Organization (usually seller-funded)
• FHA doesn't have credit score requirements, yet: FHA is a great option for buyers without credit scores (see 1 above), and for buyers with lower scores, but lenders are implementing minimums ranging from 500 to 580 for many scenarios.
• FHA allows manual underwriting: FHA has an automated approval system that makes life easy for loan officers and underwriters, but it doesn't require approval from that system, and allows "makes-sense" approval that many buyers need.
• FHA isn't for everyone: FHA offers good savings for many borrowers, but well-qualified borrowers can often save with other programs by avoiding the upfront Mortgage Insurance Premium of 1.5% charged on FHA loans. 

I hope that this quick guide will be helpful to you in understanding what can and can't be done with FHA loans.  I know you'll have plenty of questions, so please call me today to review specific scenarios.  Let's make this a great year to buy!