This web site will help you understand FHA mortgage underwriting guidelines and it will also help you determine if an fha mortgage loan is right for your situation. FHA loans have always been a good opportunity for home buyers, but there are some things you should consider before you decide.
First, we need to understand what an fha mortgage is and is not. The Federal Housing Administration (FHA) does not lend money, plan, or build housing. It is a division of the Department of Housing and Urban Development. The Federal Housing Administration sets standards for underwriting and construction, but its main purpose is to insure residential mortgage loans made by individual/private lenders. The basic intent was to provide FHA-insured loans to borrowers for their primary residence.
FHA loans have always been a great alternative for people who don’t quite qualify for Conventional financing. The guidelines are more forgiving allowing for smaller down payments, higher debt to income ratios, some credit issues, and more sources for the down payment. The great thing is that the interest rate is only slightly higher than a conventional loan. Sometimes the interest rate is actually lower. Remember this! IF you go to a Mortgage Broker or a Bank and the rate quoted is exceptionally higher, they are charging you too much. Call around for quotes. You will usually get a better rate from a broker.
- FHA is not as strict on credit scoring.
- High debt to income ratios: 31% / 43%
- 100% of down payment can be a gift from: relative, close friend, or employer.
- Seller, builder, or realtor can pay up to 6% of the sales price towards the buyers closing costs, discount points, prepaids, and up front mortgage insurance premium.
- Buyer can finance closing costs into the loan, except for prepaids and discount points.
- Credit criteria is not as strict as a Conventional loan. In fact, you might qualify if you have filed a chapter 13 bankruptcy and have been in it for at least one year.
- FHA mortgage insurance may be more expensive than Conventional mortgage insurance.
- Maximum loan amounts are lower than conventional loans and they are determined by area.
This web site has a ton of information that will help you better understand FHA loans. The guidelines are very complicated in some areas so I could never include them all on this site. If there is information you think should be added to this web site please send us an email or If there is an area you have a question about just send me an email and I’ll do my best to answer it for you.
If you are interested in the guidelines for Conventional loans you should visit our other web site about mortgage underwriting guidelines. That site talks about all types of loan products and it has several Mortgage Calculators if you want to play around with the numbers. Mortgage Underwriters.com also covers Credit History, Credit Repair and the Loan Process.
HR 3221 eliminated FHA DPA (down payment assistance) as of Oct 2008, while HR 6694 tried to re-instate it ‘just in time’. Unfortunately it has not passed yet. I’ll keep you posted.
The FHA Secure program can help home owners who are behind on their home mortgage and facing foreclosure. This program allows the delinquent home owners to refinance their ARMS (adjustable rate mortgages).
I have put together the underwriting guidelines for this program so you can determine if you qualify or if you are in the industry, you can learn how it works. FHA Secure Mortgage Guidelines
Hope For Homeowners, H4H
This is a program developed to help homeowners stay in their homes and prevent foreclosure. I’ll let you decide if it really helps anyone. I have put up the guidelines and given you the link to the Mortgagee Letter so you too can have all the details. Honest, this program is unbelievable! H4H
FHA Secure Refinance
| Closing CostsRefinance
Economic Bail Out!
FHA Credit Guidelines
The FHA loan underwriters focus primarily on the quality of credit over the last 12 months. They are not overly concerned about minor late payments which happened 18, 24 or 36 months ago. However, all collections, excluding medical, must be paid in full prior to closing (preferably prior to application) or have a documented payment plan. They do require letters of explanation for all late payments. Underwriters are more concerned about whether the loan makes sense and that you have addressed and corrected whatever issues created the past credit problems.
FHA credit guidelines can seem complicated as far as documentation but the credit guidelines or credit qualification requirements are actually slack compared to a Conventional loan.
FHA Credit Score:
Please keep in mind that FHA may not be credit score driven but most lenders are. They have the prerogative to maintain higher standards than FHA and each lender has a different cut off score (the least that they will accept).
Since you are here and if you are interested in understanding scores, this is the break down:
Mortgage and Rent payments:
This has to be your number one priority. If you have been more than 30 days late on your rent or mortgage payment in the last 12 months you will not qualify for a Fannie Mae, Freddie Mac, FHA, or VA loan. There are sometimes exceptions, … if you have a very high score, lots of assets, and a legitimate documented excuse, you may get a waiver.
Car payment and installment loans:
Your history should reflect no 60 day late payments and no more than one 30 day late to get a conforming loan. The non-conforming loans allow these and again the rate depends on how many late payments you have had. Again, FHA credit requirements prefer no lates in the last 12 months.
Revolving accounts (credit cards):
You should not have any payments 60 days late and no more than two payments 30 days late in the last two years for a conforming loan. FHA allows it with a good explanation as long as they did not occur in the last 12 months.
Collections, Judgments, and Liens:
Fannie Mae, Freddie Mac, FHA and VA require that all be paid in full and they prefer that they be at least two years old. FHA will sometimes make an exception on the length of time or if they are on a current payment plan in which case all other things must be good.
Fannie Mae and Freddie require 4 years from discharge date. FHA only requires 2 years after a chapter 7, a good excuse, and re-established credit. Actually, you can qualify for an FHA loan if you are still in chapter 13 (for at least a year) and have been paying on time through the courts. You must also get court approval which does happen often!
Non conforming lender requirements vary quite a bit. As a general rule they do want to see reestablished credit unless you are putting 20% down. There are some lenders that will lend with one day out of discharge. Your credit score is very important on these programs. Again, you need a broker to sort out the details for you. Guess what, that’s free, and no obligation. They will look at your entire portfolio and if they can’t get you in something now, they will counsel you on the steps you need to take to get in a loan later. Be sure you seek out a broker that has ALL the products on the market including FHA.
Generally, a foreclosure of your primary residence must be at least three years old and have been caused by circumstances out of your control, such as: death of the primary wage earner, layoff, or long term serious illness. Non-conforming lenders do vary but will normally require a substantial down payment if it is less than 3 years old.
The guidelines on this are about the same as a foreclosure except that it cannot have a deficiency balance for a conforming or FHA loan. The non-conforming market doesn’t care about the balance if it is more than three years old and again, their guidelines vary from one lender to another.
Defaulted student loans will haunt you for the rest of your life. Unless they are re-affirmed or paid off you will never get a conforming, FHA, or VA loan. However, the non-conforming market generally does not care about them at all except in extreme cases to the tune of $50k or more.
Be careful here. The conforming market could care less about your divorce agreement with respect to your debt. If you signed, you are still accountable. FHA will sometimes make a wavier if you can show the divorce decree that states it is the other parties responsibility and all other things are good. (These debts will also affect your debt to income unless you can prove the other party is paying with 12 months cancelled checks.) The non-conforming lenders will normally accept the divorce decree.
Generally this term refers to how many trade lines you have, how long you have had them and their amounts. Most lenders want to see at least a two-year history and at least 4 trade lines. Some require one of those trade lines to have had a balance over a certain dollar amount ($5,000). In the non-conforming market these requirements vary between lenders.
You can see how poor credit will cost you a lot of money in higher interest. It is important to take care of your credit and monitor it often, as it sometimes contains errors.
Here is the exciting part, … those funds (3.5%) can be a Gift and come from a family member, charity, or your employer.
The person providing the gift will have to provide a gift letter and their funds will have to be sourced. The provider will have to show where the money came from by supplying copies of withdrawal slips and bank statements.
- How does Kentucky FHA Mortgage Loans Work for Kentucky First Time Home Buyers? (kentuckyfirsttimehomebuyer.com)
- FHA Mortgage Insurance for Kentucky Mortgage Loans (louisvillemortgageguide.com)
- Louisville Ky FHA Loans (louisvillekymortgage.net)
- Current Kentucky mortgage rates today (kentuckyfirsttimehomebuyer.com)
- Frequently Asked Questions about FHA Kentucky Home Loans (louisvillekymortgage.net)
- Louisville Kentucky FHA Streamline Requirements (louisvillemortgageguide.com)
- Kentucky USDA Guaranteed Rural Housing Mortgage Guidelines (kentuckyusdaloan.wordpress.com)
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- We now offer Financing down to a 620 credit score on Kentucky FHA loans (louisvillekymortgage.net)
- Kentucky Mortgage Approval Article (kentuckyfirsttimehomebuyer.com)