FHA Loans Can Be A Great Option!
An experienced loan officer can help the customer clearly tell their story to qua
lify for a FHA Loans and will often make suggestions as to how to make the file more acceptable to FHA. Because of FHA’s leniency, some borrowers with past credit problems elect to use FHA for loans when they have a substantial down payment rather than getting a higher interest rate conventional loan.
FHA Home Loans are insured by the Federal Government. This insurance protects the lender from losses suffered if the home goes into foreclosure. It is not the same as hazard insurance or insurances that pay in the event the borrower dies or becomes disabled.
FHA allows a buyer to purchase a home with as little as 3.5% down. They tend to be more lenient on areas such as credit, funds to close and coborrowers.
Most loans use a method of analyzing credit called credit scoring in the underwriting process. Studies have demonstrated a direct relationship between low credit scores and higher mortgage delinquency rates. As a result many lenders have established minimum credit scores at which they will accept loans.
Unfortunately, a lack of credit, old delinquencies or incorrect information on the credit report can cause a low credit score. Although a high credit score may assist in getting the mortgage approved, a low score is not automatically cause for denial. If the credit scores are low, then it is up to the borrower to demonstrate his/her ability and willingness to pay the loan back. This allows the borrower to explain the circumstances surrounding the credit difficulties and have that explanation considered in the underwriting process.
FHA tends to be more flexible than Conventional financing in the money needed to purchase the home. In an FHA mortgage the customer must put at least 3.5% of the sales price into the transaction. Some of this money may be used for down payment and the rest for closing costs . Keep in mind, however, that the total cost to close on an FHA is commonly over the 3.5%. With the down payment, closing costs, money to establish escrows for taxes and insurance plus interest to finish out the month of closing, the total costs can be closer to 6 or 8% of the sales price.
The interest rate that you select will also have a bearing on the total costs. If you select a lower rate so that you can reduce your payment, you may end up paying additional money towards “points”. At the same time if you are comfortable with a slightly higher payment you may find a lender that is willing to reduce the costs to close in favor of a higher interest rate.
FHA allows the borrower to get the funds necessary to close from several sources. They include such areas as personal savings, gifts, grants, loans from retirement accounts and seller contributions.