| First time buyers often have little to no credit depth, | | | | HUGE advantage of FHA is that they allow for a non |
| lower credit scores and a limited amount of resources | | | | occupying co-borrower to go on the loan and qualify |
| for the down payment and closing costs. FHA | | | | with the borrower. Together, all borrowers become |
| mortgages addresses each one these issues. Let's | | | | one for underwriting purposes. This means we take |
| start with credit depth. Often a first time buyer is | | | | the income and credit of the co-borrower and |
| younger and hasn't had the time to establish the | | | | combine it with that of the owner occupant borrower. |
| traditional trade lines that an older borrower may have | | | | We always default to the lower of the combined |
| such as repayment history of student loans, car | | | | credit scores for underwriting. Imagine the possibilities |
| payments, and credit cards. FHA underwriting | | | | of a self employed or non employed borrower |
| guidelines allow for what we term "non traditional | | | | combined with a much stronger co-borrower with a |
| credit" to be used. Non traditional credit is where a | | | | strong income. |
| person is obligated for repayment, but the repayment | | | | Lastly, let's address money for the down payment and |
| history isn't necessarily reported on the credit report. | | | | closing costs. Currently, FHA 203B loans require |
| Examples include rental payments to a landlord, cellular | | | | borrowers to put 3% of their funds into the transaction. |
| phone bills, utility bills like gas/electric and cable TV bills. | | | | The minimum down payment is 2.25% and the other |
| Credit scores are always important and used in | | | | .75 percent would be for a contribution towards closing |
| underwriting loans. FHA allows for scores as low as | | | | costs or escrows for the total of 3%. Here's the good |
| 580. In certain circumstances, they may even go | | | | part-the 3% can be a gift from a relative or a qualified |
| below this number with a file that warrants an | | | | charity. Many of the down payment assistance |
| exception if the file is manually underwritten. Today we | | | | providers (DPA) such as Nehemiah and Genesis are |
| are finding most conventional mortgage guidelines are | | | | able to make the down payment a reality. The |
| requiring a 620 credit score or higher. FHA is moving | | | | underwriting provisions regarding charity down |
| towards risk based pricing. This means lower credit | | | | payment providers are changing. I suggest you act |
| scores will have to pay a higher mortgage rate but the | | | | quickly if you intend to explore that option. |
| tradeoff is homeownership will still be possible. Another | | | | |