| If you have been contemplating buying a home, but | | | | funds can come non-profit foundations with easy |
| you have credit problems, recent changes in the | | | | qualifying requirements. |
| guidelines for FHA loans may provide the answer to | | | | * Seller-paid contributions for closing costs and prepaid |
| your problems. FHA loans are not actually a new | | | | expenses are allowed up to 6% of the purchase price. |
| program, but the guidelines have been revised so | | | | This means that a buyer can negotiate terms which |
| much in the last couple of years that the real estate | | | | will result in having to bring absolutely no money to the |
| agent or seller you are trying to work with will probably | | | | closing! |
| not recognize the program anymore. | | | | * The borrower is not required to have any financial |
| The initials ''FHA'' stand for Federal Housing | | | | reserves. You can qualify for an FHA insured loan with |
| Administration. The FHA is a part of the Department | | | | $0 in your checking or savings account! |
| of Housing and Urban Development (HUD). When you | | | | * Recent FHA appraisal reform eliminated the need for |
| see HUD homes for sale, they are foreclosed homes | | | | minor cosmetic repairs to the property before closing. |
| that were financed with mortgages guaranteed by | | | | The program now allows ''as is'' appraisals and no |
| FHA. | | | | longer requires automatic inspections for termite, well |
| The program was established in 1934 as part of the | | | | or septic. These conditions were part of the red tape |
| National Housing Act with the mission to expand credit | | | | that aggravated sellers and agents so much in the |
| and home ownership opportunities for borrowers who | | | | past. |
| may have had credit problems, have a limited credit | | | | * No minimum credit score. There is an automated |
| history, or whose bills take up a higher percentage of | | | | underwriting system called FHA Total Scorecard. If this |
| their total income than typically allowed on conventional | | | | system approves your loan, there are no further |
| loans. The FHA program accomplishes this goal by | | | | requirements to explain bad credit, pay off collections |
| providing insurance which will pay off the loan if the | | | | accounts or meet a set debt to income ratio. |
| borrower defaults. Because of the guarantee of FHA's | | | | * If the automated underwriting system does not |
| mortgage insurance, the lender can take more risk | | | | approve your loan, the loan may be underwritten |
| approving mortgages for borrowers who would not fit | | | | manually and the underwriter is given discretion to use |
| into conventional loan programs. The FHA loan | | | | common sense in the decision to approve the loan. |
| guidelines were designed around the needs of the first | | | | The underwriter often does not have this discretion on |
| time homebuyer, but the program can also be used for | | | | conventional loans where they are not allowed to |
| a purchase or refinance by any borrower who does | | | | override the automated decision. |
| not already have an outstanding FHA. The standard | | | | * No prepayment penalties. Many loans for borrowers |
| FHA loans are only allowed for owner occupied | | | | with credit problems have significant penalties for |
| homes and are not for purchasing investment property. | | | | paying the loan off within the first 3-5 years. These |
| Many real estate agents and sellers are hesitant to | | | | penalties prevent refinancing for a lower rate or for |
| recommend that anyone use an FHA loan because | | | | debt consolidation. FHA loans have no prepayment |
| they have heard horror stories about the red tape | | | | penalties. As a matter of fact, FHA loans allow for a |
| involved. In the past, the FHA guidelines were much | | | | program called streamlined refinancing. As long as you |
| stricter on the property and caused the seller to have | | | | make your mortgage payments on time, you can |
| to pay higher fees than a conventional loan. Using an | | | | refinance if rates go down without having to produce |
| FHA insured loan often caused the closing to have to | | | | all of your qualifying documentation again. |
| be delayed while arguing over seemingly silly red tape | | | | All these factors benefit both the buyer and the seller. |
| issues. However, this red tape has been almost | | | | Without this program, the market for the seller's home |
| completely unraveled over the last couple of years. If | | | | would be greatly reduced. With the FHA insurance, |
| you have an agent or seller who is reluctant to accept | | | | potential homebuyers who cannot get approved for a |
| an offer involving FHA financing, here are some of the | | | | conventional loan can get a mortgage with the same |
| benefits: | | | | interest rates as a borrower with perfect credit and a |
| * Low down payment. Typically 3% of the purchase | | | | low debt to income ratio! And they can buy the home |
| price AND gift funds are allowed for the entire down | | | | with no money out of pocket! |
| payment, closing costs and prepaid items. These gift | | | | |