FHA Loans with a simplified explanation of FHA credit standards

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

FHA loans - fha mortgages - FHA home loans in New Jersey

 

FHA just came out with a new mortgagee letter describing the new changes on FHA loans regarding credit scores and LTV's (loan-to-value). Here are the changes : New updates for FHA Mortgages - Changes in LTV & credit scores - seller concessions?

 

Just the other day, I read this post,"Bending Over Backwards".. A simplified Version of the New FHA Credit Score Guidelines...by Karen Stone, that talked about these changes and laid out the credit score changes. It was this person's simplified version which was written by a realtor. It was well written and the outline was accurate, but it was missing critical explanations of what can be done and what can't be done. Sorry people, but in my opinion, this can be misleading for several reasons.

  • Consumers reading that post will now search for a lender to offer FHA Loans with low credit scores.
  • Realtors think that these loans now exist.
  • A consumer might find a lender that says yes to such FHA credit score, but in which it will be very difficult to close that loan. 2 months later, the loan is denied when it was probably a dead deal from day one. This happens.

 

Jeff Belonger's cheat sheet for FHA credit scores based on what was mentioned in the Mortgagee Letter 2010-29. (changes in bold) Borrowers with....

Credit scores below 500 are not eligible for FHA insured financing.  - Okay, not a total loss considering that we know anyone with low 500 credit scores will usually have many credit issues that will prevent them from getting a mortgage anyhow. Most lenders require a credit score of 620 or above.

Credit scores at 580 or above are allowed maximum financing for FHA loans. - Meaning that you can obtain FHA financing with the minimum 3.5% down with a 580 or above credit score. But be very careful of those that promise you FHA loans with credit scores from 580 - 619. They are much more expensive, anywhere from 1% to 1 1/2% higher in rate.  And also come with 1 to 2 points more. Why not wait until you can get your credit scores up. They might woo you with a FHA streamline, telling you that you could refinance that high rate to a lower rate in six months. But they might make it sound easy, leaving out an important topic in regards to how the new formula works for FHA streamlines. The issue? In most cases you will need to bring closing costs to the closing table, that you won't be able to roll those costs into the loan. The other issue not mentioned. The lenders that I see off credit scores from 580 to 599 are requiring 10% down anyhow.  It's a compensating factor for them to make that loan more sell-able. Just be very careful about what some tell you. In many cases, it's to get you in the door...

Credit scores from 500 to 579 are limited to 90% LTV (loan-to-value) - In my opinion, no worries here because I know of no lender even doing FHA mortgages with credit scores below 580 anymore. And again, in most cases, even credit scores in the high 500's will need some massaging before that loan could be approved.

 

Summary : I have seen some people write about FHA loans and even in a simplified manner. I just read a comment that some of these mortgage posts written by loan officers can put you to sleep. So should I leave out some details that need to be mentioned as insight. Yet dress up the post, make it sound fun, easy to read, and "simplified"? Sorry, but in my opinion, that kind of method is misleading.  Why?  Easy to read or not, there needs to be a more detailed explanation and not just that FHA loans can be done down to a 500 credit score. Or that you only need to have 3.5% down with a credit score 580 or higher.  Why do I say this?  Because if just written that way, it would sound like it could be done this way. Just because FHA allows for it, doesn't mean it can happen. Many lenders have specific "lender overlays". In my opinion, "simplified" or not, it has to be mentioned. Otherwise, as I mentioned, you will have consumers and or realtors thinking that this can be done and will actually waste their time looking for such lenders. Consumers and realtors need to be better informed.

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. David & Lisa Webber 09/12/2010 06:36 AM
  2. Gabe Sanders 09/13/2010 12:48 AM
Topic:
Lending / Financial
Location:
New Jersey Camden County Cherry Hill
Groups:
Realtors®
Mortgages
All About Mortgages/Mortgage Networking
Realtors Needing the services of the Lending Powers
The FHA Mortgage Group
Tags:
credit scores
fha loans
fha credit
fha loans credit
fha mortgages credit

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Rainmaker
82,833
Mike Cathell
Real Estate Services of SWFL, LLC - Fort Myers, FL
Real Estate Investing for Real People

Great info Jeff!  I agree this post may not be "fun or cute" but the information is vital to my clients looking to purchase.  I also believe writing about a specific topic such as this should be left to the experts in that profession.

Sep 12, 2010 06:35 AM #1
Rainmaker
373,002
Gina Chirico
Lattimer Realty - Fairfield, NJ
Real Estate Agent - Essex County, New Jersey

Well said by Mike in the first comment.  I also believe writing about specific topics should be left to the experts in that field.  Thank you for the clarifications and explanation. 

Sep 12, 2010 06:58 AM #2
Rainmaker
1,082,208
Michele Cadogan-Cell 917-861-9166
Fillmore Real Estate 2926 Ave J Brooklyn NY 11210 - Brooklyn, NY
Licensed Real Estate Associate Broker -

Thanks - good post and to the point. 

Sep 12, 2010 07:08 AM #4
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

MIKE... . many of my mortgage posts and or updates are usually boring, not fun.  Those that try to dress them up with sometimes not mention the true facts or explanations that need to be mentioned.  Thanks for realizing this and for the polite compliment.

GINA.. . yes, I agree, Mike made a spot on comment. thanks for the feedback.

 

KAREN.... . first off, not to argue here, but you updated your post after some of the comments from other loan officers.. then "wall-papered" your post with such disclaimers. I am glad you did, but boring or not.. long or not... in my opinion, I think many realtors will want it short and fun... consumers want the full boat, and not what sounds good. They want those detailed explanations.. sure, you will get a consumer that will say, nice that this was simplified.. but if shared both posts side by side with them, I think they would change their mind then. Again, it's not that you wrote a post with bad info, but that things were left out, which yes, can make your post misleading. Why?  Because it sounds like loans with 500 credit scores can be done and are out there.  They aren't.. and some of us have an issue with that.  But I am glad this discussion came up and you have an excellent Sunday also.  thanks

 

MICHELE... . my pleasure and thanks for the compliment.

 

Sep 12, 2010 07:24 AM #5
Rainmaker
160,099
Deanne Olivas
Keller Williams Realty East Valley - Tempe, AZ
Your Home Matters

Jeff, Just wanted you to know I appreciate the information you provide. Thank you.

Sep 12, 2010 08:52 AM #6
Rainmaker
4,308,282
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Thanks for the great explanation Jeff.  Going to re-blog this one.

Sep 13, 2010 12:47 AM #7
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Patricia Kennedy
RLAH Real Estate - Washington, DC
Home in the Capital

So this is the good news, bad news post.  FHA is down to 500, but no lenders in their right minds will approve the loan.  You have this knack for getting into the nitty gritty while keeping it reasonably simple. 

Sep 14, 2010 04:03 PM #8
Rainmaker
1,003,868
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Jeff:  Yes, I wrote the post.  Yes, I called it "simplified."  But... I put in many disclaimers about mitigating factors, and ended my post with a five-paragraph "aside" to my readers and loan officer friends... which should have addressed your fears about my post being "misleading."

Again, I was not attempting to write a "scholarly treatise" on FHA underwriting guidelines.  And the comment one reader made about such long explanations as you often make, and make very well, I might add... CAN cause folks to either "fall asleep" as the writer said in jest, or quit reading it due to it's complicated nature... kind of proved my point.

My point in writing my "simplified version" post was to include enough information so that the typical Realtor who "does not get 'into' mortgage financing" could get a basic understanding.

I think your labeling the post as "misleading" is very unfair.  Yes, it was "incomplete," but most things that are "simplified..." ARE incomplete by their very nature.

You also said it was "missing" some things.  OF COURSE it was missing some explanations, but again, that is what "simplified" means.

All I ask of you, is that you be fair.  "Simplified" does not mean "misleading."  It of course DOES mean "incomplete."  That, again, is what "simplified" means.  It is a starting point.

Sep 14, 2010 04:41 PM #9
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644,278
Marilyn Boudreaux
Marilyn Boudreaux, Century 21 Mike D. Bono & Co.'s - Lake Charles, LA
Lake Charles LA Century 21 Realtor

Jeff, this is an informative post but I won't be wasting too much time with a buyer who falls into this category. 

Sep 14, 2010 05:06 PM #10
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

DEANNE... . well thank you very much for those kind words and for stopping by.

GABE... .   thanks and thanks for your continued support... and for reblogging this and the compliment.

 

PAT... . I believe in the nitty gritty...anything less can be misleading.. .. or a better term, misinformation, because this kind of stuff needs detailed explanations... otherwise you get compliments such as ...

"Good overview, ..........  Nice and simple.  Anything over 500 and you can get a loan.  Thank goodness."

Sorry, but comments such as the on that I just stated is proof to why you need posts that give detail explanations. Because here is a realtor that is assuming that 500 credit scores can be done... yea, under FHA, but FHA doesn't write mortgages, they only insure them.. and no lenders are doing 500 credit scores.  On top of that, look at my example in costs... why would you want to put someone into a high rate with high fees and payments, when they could just wait 2 to 6 months to maybe a year. This needs to be expressed and explained ... not simplified..

 

KAREN... . let me be simplified as I was in one of my comments that you deleted on your post. Yes, you added disclaimers, but you added those after the fact, correct?  And they were added after myself and a few other loan officers stated the same complaint per se, right?  And please read my comment above, the one to Pat Kennedy... this should answer the rest of your comment and how I feel, if you couldn't gather that from my comments on your post and the post that I wrote above.. thanks for your feedback.

MARILYN... . thank you very much... and you shouldn't until a very qualified loan officer counsels this kind of borrower, goes over their credit, and goes over their goals and options.  and then we can turn them back over to the realtor... thanks

 

Sep 14, 2010 06:31 PM #11
Rainmaker
287,572
Barb Van Stensel
Chicago, IL

Jeff, great post and what a conversation! 

Karen:  Simplified means to me "in layman's terms" not "incomplete"!  For pete's sake, if you have to make a medical decision that always effects the outcome and qualify of your life, are you going to want the doctor to explain iin terms that are understandable and complete so one can make an "informed" decision or be simplified where the information may be incomplete?  I am confused on "incomplete".  Come to think about it ... it makes me concerned that someone would give let alone have the consumer receive incomplete simplified information.

I vote for a conversation where my clients can understand and have all the information in front of them so they can make an informed decision.

 

Sep 15, 2010 03:55 AM #12
Rainmaker
287,572
Barb Van Stensel
Chicago, IL

Correction:  "effects the outcome and quality of your life"

Sep 15, 2010 04:09 AM #13
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Jan 18, 2012 04:21 AM #14
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