This is article Larry has produced is timely and provides some great information. #4 - Is a biggy. In fact I am working with a young nursing student right now and utilizing the non-occupying co-borrower (Mom & Dad) to qualify her. In fact, we are doing a 203k rehabilitation loan using FHA financing - FHA is a great and viable program and in my humble opinion, will always provide a value in the right situation.
There are many things that people should know about FHA loans. They're great for a variety of reasons, but I'm going to give you my list of favorite reasons for considering and FHA mortgage.
- First time homebuyers can generally come in with less of a downpayment. Truthfully, conforming or conventional loans generally want 5% down. FHA loans only need 3.5% down. How cool is that?
- The entire downpayment for an FHA loan can be in the form of a gift. There are gift restrictions as to who can give you a gift, but generally, if you're related, you can help someone out by gifting them the entire downpayment and closing costs. Borrowers can put zero of their own money into the transaction. You know that with conventional loans no matter what the borrower needs to put 5% of the purchase price into the transaction, unless the borrower were to receive a gift of at least twenty (yes 20) percent. Makes FHA so much more attactive.
- Credit scores and credit in general. - While FHA is slowly inching to mirror the credit requirements of conventional loans, for now, FHA still allows lower credit scores. In fact, scores alone, can't be used to make a credit decision. Also, when you're coming out of a Bankruptcy, FHA is so much more forgiving as to the time lines as to when someone can buy a house. Credit scores and credit requirements are so much more lenient with FHA.
- Non-Occupant Co-Borrowers- THIS IS A BIGGEE! I do this all the time. The borrower can have someone co-sign with them even if the person who is cosigning isn't going to live within the property. The loan gets qualified on the income and debt on the borrower and the non-occupant co-borrower together. And still only 3.5% is needed for the downpayment. On conventional loans, 10% down is needed and the borrower still needs to put 5% down against the entire transaction and still qualify for carrying a significant part of the mortgage payment. For FHA, the borrower can not be earning a penny all year, but so long as the borrower and non-occupant co-borrowers combine to qualify together, we're good to go! I have dads and mom buying homes with kids in college. The kid is the borrower and mom and dad co-sign. Do em every year out at Northern Illinois University.
- Appraisals - Appraisals used to be so difficult when going FHA. That's no longer the case. FHA, for the most part, mirrors those of Fannie Mae and Freddie Mac. They do also protect the borrower in that if there were substantial and material defects that would cost the borrower a lot of money in the first year of ownership to fix up, they'll address those issues, but the same can now be said of conforming loans.
0H YEA......You can buy right away....right after a short sale under some circumstances!!!!