Government Mortgage Loans

Mortgage and Lending with NFM Lending , Chad McShane, NMLS #342881 NMLS 342881

Government Loans

  • FHA Loans:

    The Federal Housing Administration (FHA), which is part of the U.S. Dept. of Housing and Urban Development (HUD), offers various mortgage loan programs. FHA loans have lower down payment requirements and are easier to qualify for than conventional loans.

    FHA loans are not score driven. Instead, they are written in a way that provides the borrower the benefit of the doubt that there had been, at some point in their past, circumstances beyond their control, and as long as the borrower has recovered from those circumstances in a reasonable manner, they're generally going to be credit-eligible for an FHA loan.

    The FHA guidelines are forgiving about circumstances that many other lending programs, including conventional, are not favorable towards. The FHA states that a borrower, recovering from a Chapter 7 Bankruptcy, can be eligible for an FHA loan two years after being discharged. To be eligible for an FHA loan after a foreclosure, a three-year wait time is required after being discharged. If the borrower has filed for a Chapter 13 Bankruptcy or is in a consumer credit counseling program (where the borrower has re-established a negotiated repayment term based on their credit items), and has been on the plan for 12 months making consistent payments on time, the borrower will be eligible for an FHA loan.

    Source of Down Payment Flexibility

    An FHA-insured loan allows a wide variety of assets to be used to cover the buyer's down payment and closing costs. FHA guidelines require a 3% minimum investment from the borrower; however, those funds can be from a gift or from a variety of other sources. The FHA considers gift funds to be the same as if they were the borrower's own funds truly seasoned for sixty days in the borrower's account, or proven to be from other eligible sources. You also have the option of using down-payment assistance charity programs like The Nehemiah® or AmeriDream® down payment assistance programs. Use of charity fund programs allow the buyer to receive a gift for the down-payment immediately prior to closing, and then the amount of the gift plus a small service fee is collected from the seller immediately after closing. This is a legal way of funneling money from the seller to the buyer that is acceptable to HUD.

    FHA guidelines also allow fund sources such as mattress money, or lease option credits used, as they are lenient about how the borrowers can procure the down payment money. As an added bonus, the FHA is very liberal about what they will let the seller pay in the way of the buyer's closing costs and pre-paid items. The seller can pay up to 6% in concessions towards the buyer's closing costs, pre-paids and discount points.

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