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The federally insured mortgage program provided by HUD normally referred to as FHA has been around for a long time. When I first got into the mortgage business FHA was by and far the number one mortgage program. At the time there were no stated income programs, no option ARM programs, there was no 100% financing, it was a very vanilla time. Conventional mortgages, those offered through FannieMae and FreddieMac just were not big, they were used primarily for move up buyers who had at least 20 percent to put down on a home.
Then around 2002 FHA disappeared off the face of the mortgage world, FHA went from representing nearly 60% of all mortgage origination to 3%, nearly nothing.
Why did it get replaced, the mortgage industry got too greedy and developed mortgage programs to fit nearly everyone and anyone, if you had a pulse you could get a mortgage to buy a home, with little to no money out of pocket. Today that has all changed, around the early part of 2007 when the sub-prime business was going bust and the resulting 'credit crunch' many in the mortgage industry returned to an old friend, FHA. Gone now are the conventional and non-conforming loan programs that allowed for 100% financing, limited documentation loans, easy qualification sub-prime loans, negative amortization loans, and I say good ridance to bad rubbish. Today it is much more difficult to get a mortgage, we have turned from everyone and anyone to a more prudent position of a borrower is going to have to prove their willingness to pay their obligations and have the ability to pay as well.
FHA returns us to an old school of common sense underwriting, FHA is not credit score driven though some lenders are asking for a minimum credit score of 580. FHA allows for some late payments and collections depending on the type, size and age of the derogatories and collections you may not be required to pay them off. Because FHA is not credit score driven borrowers with no credit scores are allowed to purchase a home if they have other alternative credit sources, such as cell phone bills, rent, utility payments, unreported loans, insurance payments, and several more.
FHA is not just for first time home buyers, if your down payment is less then 20% of the sales price it more then likely that you should be in an FHA home loan, it is a safe assumption that your interest rate will be lower then a conventional loan and the amount you pay in mortgage insurance will be less or near the same as in a conventional mortgage.
Looking to buy your next new home with zero down payment, it is still possible with FHA. Through Down Payment Assistance programs offered through state grants or charitable organizations you can still buy your next new home with no down payment and possibly with the seller paying your closing costs.
Do you live in an area that has been determined to be a declining market, this is an area where house prices are falling to the extent that either you can't get a conventional mortgage or the lender requires you to place an extra 5 to 10 percent more down payment? FHA does not recognize declining market assessments and will lend on the value of the home as determined by sales price or appraisal which ever is the lower.
Warning, if you are hearing from your real estate agent that FHA is a bear to work with then your real estate agent has not been keeping up with the changes at FHA. Gone are the days when the FHA inspection was so difficult that it would eliminate a house because of a tear in the screen of a window. Today FHA utilizes the same appraisal format as all other major loan programs. If you are working with a lender who does not have access to FHA then you are working with a lender who can not provide you with the number one loan program today, find a lender who can offer you FHA.
So welcome back to the old king of the mortgage industry, we missed you.
Bob Rutledge is a recognized FHA authority in the St. Louis, St. Charles and surrounding areas of Missouri
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