The easily recognized HUD symbol shown has given confidence, trust, and hope to first-time home buyers over many decades. HUD programs have enabled millions of people to fulfill their dreams of home ownership and enjoy a richer and fuller life. The HUD symbol signifies that discrimination based on race, color, religion, sex, family status, or disability is prohibited.
In my first blog,Creative FHA financing -- No money out of pocket from the buyer! Part 1, I talked about using non-profit companies to help a consumer get into a property with little or no money out of pocket. These programs came out in the mid 90's and are still used with today's financing options. One issue though is since people are using none of their own money in the transaction, there have been studies that these type of loans have produce a higher number of foreclosures. But FHA is still a great program if you can't qualify conventionally.
Why are FHA loans such a vital force in home ownership?
- No credit score requirements
- Minimum down payment of 2.25% (this can slightly vary depending on your loan amount)
- If the loan doesn't get approved in the system, it can easily be manually underwritten.
- You don't need standard trade lines of credit on your report. You can have 3 to 4 pieces of non-traditional credit. ie. *if you could show 6 months worth of car insurance payments. *show utility payments *cell phone payments (anything that you can show 6 to 12 months worth of payments, but on time.Case by case, but closer to 12 months.
- The underwriter usually wants to see at least a 12 month clean credit history. You can still have isolated lates in less than a year, with good explanations.
- Monthly mortgage insurance. No matter how much you put down, it's a standard .5% monthly amount across the board. Conventional loans have different increments depending on your down payments.
- FHA has raised their cash-out LTV to 95% in the last year. Conventional will only go to 90% of your value.
- Higher qualifying ratios of 31/43. With compensating factors, they can be manually underwritten up to a 50% back end ratio. Conventional is typically 28/36. Unless approved within the system, sometimes higher.
- The rates are the same as conventional programs.
When using the Nehemiah program or any other non-profit companies in conjunction with FHA financing. Underwriters discretion -- they will usually want to see a little cleaner file because you usually won't be investing any of your money into the transaction. They usually want to see little better credit scores, closer to 600. Now, you can have lower credit scores, as long as your credit history has been in good status in the last 1 to 2 years. The reason for this is because there have been more foreclosures recorded who have used these types of programs. Here is an article that talks about foreclosures because of the Nehemiah loans and the History of Short Sales. But Nehemiah
did partner up with a company to help protect the home owner due to loss of job by covering their mortgage payments up to 6 months. Please read The Nehemiah Corporation Of America Launches Mortgage Payment ...
After reading all of this, you might ask, what's the catch. All of this sounds too good. One negative aspect of FHA financing is that there is a maximum loan amount allowed in each county. Those loan amounts can be found here. https://entp.hud.gov/idapp/html/hicostlook.cfm
For some more reading on the Nehemiah program, please read : http://www.nehemiahcorp.org/pr/pr_040705.cfm
And if you didn't read Part 1 yet: Creative FHA financing -- No money out of pocket from the buyer!!! -- Part 1
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