This BLOG On Benefits Of FHA Loans For First Time Home Buyers Was UPDATED On April 26th, 2019
By Gustan Cho
There are many Benefits Of FHA Loans for first time home buyers. There are also Benefits Of FHA Loans for home buyers with prior bad credit, bankruptcy, foreclosure, deed in lieu of foreclosure, and short sale.
- FHA loans make home ownership possible with only a 3.5% down payment
- Home buyers can have credit scores as low as 580
- Home buyers with credit scores down 500 can still qualify for an FHA Loans with 10% down payment
- FHA offers extremely flexible guidelines
- Home Buyers with unpaid collection and charged off accounts can qualify for FHA Loans without having to pay outstanding collections and/or charged off accounts off
- First time home buyers who do not have the required 3.5% down payment can get the down payment gifted
- Parents, brothers, sisters, grand parents, sons, daughters, cousins, in laws, or other family members can qualify to become non-occupant co-borrowers
- Multiple non-occupant co-borrowers are allowed with FHA Home Loans
Benefits Of FHA Loans On Gift Funds
FHA allows down payments to be gifted;
- 100% of the down payment can be gifted by family members
- A gift letter needs to be signed by the donor of the gift
- Gift funds need to be a gift and not a loan
- Deposit slip and sourcing of the gift funds leaving the donor’s account and being transferred to the home buyers bank account needs to be provided to the lender
Benefits Of FHA Loans Compared To Conventional Mortgage Rates
Mortgage rates for FHA loans are normally lower than conventional mortgage rates.
- However, FHA requires mandatory upfront mortgage insurance premium
- Upfront FHA MIP is a one time fee of 1.75% of the mortgage amount
- Upfront FHA MIP can be rolled into the mortgage loan balance.
- FHA also requires mandatory annual mortgage insurance premium to be paid monthly along with the mortgage loan borrower’s mortgage payment
- Annual FHA MIP is escrowed along with the homeowner’s property insurance and principal and interest
- The annual mortgage insurance premium is 0.85%.
FHA Mortgage Lending Guidelines
FHA mortgage underwriting guidelines are much more relaxed than conventional guidelines. Minimum FHA down payment requirements are 3.5% down payment.
- Conventional loan minimum down payment requirements are at 5%
- Minimum credit score requirements for FHA loans are 500
- However, if credit scores fall between 500 and 579 FHA requires that you have a 10% down payment
- To qualify for a 3.5% down payment FHA loan, borrowers need a credit score of at least a 580 or better
- Minimum credit scores to qualify for a conventional loan is 620
- FHA standards on debt to income ratios are much more lenient than conventional guidelines
- FHA borrowers can have a debt to income ratio of up to 56.9% DTI and still get an approve eligible per DU FINDING
- Need credit score of 620 or higher to get 56.9% DTI AUS Approval
- Borrowers with credit scores under 620 the debt to income ratios are capped at 43% to get AUS Approval
- Conventional loan programs debt to income ratio requirements are capped at 50% maximum
- Many high credit score borrowers who have a higher debt to income ratios who do not qualify for a conventional loan can qualify for an FHA Loans
Shorter Waiting Periods After Bankruptcy And Foreclosure
Other advantages of an FHA Loan versus Conventional Loans is that the mandatory waiting period is shorter after bankruptcy and foreclosure.
- To qualify for an FHA loan after Chapter 7 bankruptcy discharge, the waiting period is only two years from the discharge date of the bankruptcy
- There is a mandatory 4 year waiting period after Chapter 7 bankruptcy to qualify for Conforming Loans
- There is a mandatory waiting period of 3 years after a foreclosure to qualify for FHA loans
- The minimum waiting period after a foreclosure to qualify for conventional loans is 7 years
- The waiting period is 3 years after a deed in lieu of foreclosure and short sale to qualify for an FHA Loans
Waiting Period After Deed In Lieu And Short Sale To Qualify For Conventional Loan: FANNIE MAE UPDATE EFFECTIVE AUGUST 16, 2014
Effective August 16th, 2014, Fannie Mae waiting period guidelines for those with a prior deed in lieu of foreclosure or short sale has changed:
- The new Fannie Mae guidelines effective August 16, 2014, increased to 4 years after a deed in lieu of foreclosure or short sale to qualify on conventional loans
- 5% down payment is required on conventional loans
- Prior to August 16th, 2014, qualifying for conventional loans with a deed in lieu or short sale the waiting period was two years with 20% down payment
- This 2 year waiting period after a deed in lieu of foreclosure or short sale is no longer in effect after August 15, 2014
- Effective August 16, 2014, those with a deed in lieu of foreclosure or short sale can qualify for a conventional loan with only 5% down payment after a 4 year waiting period after their deed in lieu of foreclosure or short sale
Non-Occupant Co-Borrowers
Other advantages of an FHA loan is that it permits multiple non-occupant co-borrowers. Conventional loan programs do not allow this.
- Those home buyers who cannot document income and/or have high debt to income ratios can have a family member be a non-occupant co-borrower
- FHA Loans are the only loan program that allows multiple non-occupant co-borrowers
- VA Loans only allows spouses of veteran borrowers to become co-borrowers
FHA 203k Loan
One of the greatest benefits of FHA Loans is the HUD 203K Rehab Loan Program. Home Buyers can purchase fixer uppers and get both the acquisition and construction loan all in one loan.
The FHA 203k Loan program allows homeowners to purchase a home in need of repairs.
- It is an acquisition and construction loan underwritten with one appraisal required
- The appraisal needs to be an as is and as complete
- There are two different types of FHA 203k loan programs
- The FHA 203k Streamline and the Standard FHA 203k Loan program
- The FHA 203k Streamline mortgage loan program limits the maximum construction budget to $35,000
- The full FHA 203k Loan program enables a home buyer unlimited construction funds up to the maximum FHA Loan Limit
One Year Waiting Period After Bankruptcy And Foreclosure
HUD launched the all-new FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program on August 15, 2014, which turned out to be a total disaster. The Back To Work loan program shortened the waiting period after a bankruptcy, foreclosure, deed in lieu, and short sale to a one year waiting period.
- To qualify for the FHA Back to Work extenuating circumstances due to an economic event mortgage program, the home buyer needed to have been terminated and/or laid off from their work
- Or the employer needed to have gone out of business
- This involuntary termination of the home buyer’s employment was the direct cause of them going through a bankruptcy or having their homes foreclosed upon
- The home buyer also needs to show that due to this involuntary termination that they have had a drop of at least a 20% household reduction of income for at least six or more months
- The home buyer needs to show that he or she had great credit with timely payment history prior to the economic event
- Derogatory credit is expected due to the economic event, however, re-established credit is expected after they have obtained full employment
- There cannot be any late payment history after the mortgage loan applicant has gotten a new full-time job
- A HUD-approved housing course and certificate of completion signed by the HUD counselor was required
- 30 days prior to them to be able to start the mortgage application process
The FHA Back To Work Mortgage has been discontinued and is no longer available and offered.
Qualifying For FHA Loans With Direct Lender With No Overlays
Borrowers who need to qualify for FHA Loans with a direct lender with no mortgage overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We have zero overlays on government and conventional loans. Home Buyers can qualify for VA and FHA Loans one year into their Chapter 13 Bankruptcy Repayment Plan. We have no mortgage overlays on FHA Loans After Chapter 13 Bankruptcy discharged date. We are available 7 days a week, evenings, weekends, holidays.
This BLOG ON Benefits Of FHA Loans Was PUBLISHED On April 26th, 2019
