FHA Loans and FHA Mortgages

We have been in a doom and gloom housing market for the last 6 months to a year. Largely due to the part of the media and uneducated loan officers and realtors. Let me tell you something, there is still plenty of mortgage money to lend.

The problem is that you have some lenders that don’t know anything other than conventional mortgages. Or they aren’t FHA approved to do FHA Loans. And not to knock realtors, but there are many realtors that have been in this business for 20 years or so, that keep relating to FHA mortgages of the past. Yes, they were sometimes harder on appraisal repairs, but that was prior to 2001. Since then, HUD did away with the VC sheet. Only those items harmful to the borrower, must be repaired only if noted by the appraiser. The reason I bring this up is because I just spoke to a loan officer in Maryland that told me that he met 2 realtors that have been in real estate for 25 years, who told him that they don’t like FHA mortgages. The funny thing is that they haven’t had a buyer or seller do a FHA loan in 10 years. Hence why I want to give a quick education on FHA loans right now.

FHA loans & FHA mortgages - The basic principals and myths…

   –     FHA mortgages have a one-time mortgage insurance premium, known as upfront mortgage insurance, that makes the loan more expensive.   MYTH   And some realtors still think it’s 3.00 percent. Again, that was the 90’s. As of 10/1/08, it’s 1.75% of the base loan amount. And no, it’s not that expensive. Example : On a $250,000 loan amount, it’s about $30 a month added to the payment. And keep in mind, that is with 2.25% down. If you put 3% down on a conventional loan, just the payment alone would be $65 or more higher based on that same loan amount. And that is not including any pricing hits on the rate for credit scores under 720. 

   –     The monthly mortgage insurance on a FHA loan is very expensive.   MYTH   This is called annual mortgage insurance or MMI (monthly mortgage insurance. No matter how much you put down, it’s either .55 percent or .50 percent of your base loan amount. Comparing this to a conventional mortgage, you need to put down at least 10% in order to get to .52 percent. And again, you will still have to worry about credit scores being an issue.

   –     FHA loans overall are just hard to qualify for.   MYTH    Conventional loans are much harder to qualify for now, even with 10% down in some cases. If a conventional loan is not approved in the system, through DO/LP/ or DO, then it’s a dead deal. I can still do manual underwrite loans down to a credit score of 500. Most lenders can’t go below a 580.  It all comes down to a loan officer that truly understands on how credit works and how to qualify on income. 

   –     As of now, 3% out of pocket and 6% from the seller as seller concession.  As of 1/01/09, the new down payment change will be effective.

   –     FHA Cash out loans to 95% of the appraised value.  FHA jumbo cash outs to 85% LTV.

   –     Non occupant co borrowers on both purchases or refinances are allowed.  A non occupying co borrower has to be a relative though. And you can’t use the better credit score or the credit of the co-borrower. Their credit is still a factor though. The primary concept here is to use their income to help you qualify.

   –     Bankruptcies - A Chapter 13 needs to be 1 year old and a Chapter 7 needs to be 2 years old. On conventional loans, it’s 4 years old.

Overall, these are just some of the basics. In many cases, FHA loans are the way to go, no matter what the nay sayer says. Yes, mortgage money is still out there. Lenders are still making loans and lending money.  Those that are usually having trouble after they told you yes, theycould do the loab, are those that really don’t know what they are doing. They were just trying to get a deal in the doors and in many cases, hoping that it sticks on the wall. The real professional doesn’t have time to hope, but a real professional loan officer knows it will work, because of their expertise and knowledge.

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