FHA Loans During The COVID-19 Pandemic Mortgage Crisis

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BREAKING NEWS: FHA Loans During The COVID-19 Pandemic Mortgage Crisis

FHA Loans During The COVID-19 Pandemic Mortgage Crisis for homebuyers and homeowners:

  • Many borrowers are confused about why so many lenders have different credit score requirements on FHA Loans During The COVID-19 Pandemic
  • GCA Mortgage Group is getting countless calls daily by borrowers to check on whether or not HUD changed FHA Guidelines on FHA Loans
  • HUD is the parent of FHA and sets the minimum agency mortgage guidelines on FHA loans
  • HUD had not changed any agency lending guidelines on FHA loans
  • It is still the HUD 4000.1 FHA Handbook that lenders need to go by
  • Under HUD guidelines, borrowers need a 580 credit score to qualify for a 3.5% down payment FHA loan
  • Borrowers can qualify for FHA loans with credit scores down to 500 FICO as long as they get an approve/eligible per automated underwriting system
  • However, to qualify for an FHA loan with under 580 FICO, the borrower needs a 10% down payment versus 3.5%
  • The coronavirus pandemic has caused turmoil and chaos in the secondary mortgage bond market

Borrowers with under 700 credit scores are facing challenges in qualifying for a mortgage.

Hurdles And Obstacles With Qualifying For FHA Loans During The COVID-19 Pandemic

Investors in the secondary mortgage bond market have no interest nor appetite in buying mortgage of borrowers with under 700 credit scores

  • That is why mortgage rates are high for borrowers with under 700 credit scores
  • Not only do borrowers get higher mortgage rates but they also need to pay discount points
  • When mortgage rates are at historic lows, borrowers with under 700 FICO need to pay high mortgage rates PLUS discount points
  • Most lenders have stopped doing FHA loans with under 660 credit scores
  • The great news is Gustan Cho Associates have no lender overlays on FHA loans during the COVID-19 pandemic
  • GCA Mortgage Group is one of the very few national mortgage companies that still aggressively do FHA and VA loans under 620 credit scores
  • Mortgage underwriters are more careful when underwriting a loan 
  • Lenders do not want to take a chance in not being able to sell their loan on the secondary mortgage bond market after they fund
  • Due to extra caution when underwriting a loan, the mortgage process is much longer during the coronavirus pandemic
  • Most loans take 45 to 60 days to close
  • Many lenders have stopped doing manual underwriting on FHA and VA loans
  • Many lenders have suspended doing FHA 203k loans
  • Many lenders have stopped doing Reverse Mortgages during the coronavirus pandemic

In this article, we will discuss and cover FHA Loans During The COVID-19 Pandemic Mortgage Crisis.

Agency Mortgage Guidelines Versus Lender Overlays

Why are lenders quoting different credit score requirements on FHA loans?

  • FHA loans are insured by the U.S. Department of Housing and Urban Development (HUD)
  • HUD is the parent of FHA. HUD is in charge of setting minimum credit score requirements on FHA loans
  • The minimum credit score required for a 3.5% percent down payment FHA loan is 580 FICO per HUD Guidelines
  • However, lenders can have higher credit score requirements called lender overlays
  • Lender overlays are lending requirements set by individual lenders
  • Most lenders have overlays on FHA loans
  • Examples of overlays are credit scores, debt to income ratios, and other credit and/or income requirements
  • All lenders need to meet the minimum HUD guidelines for their borrowers
  • However, lenders can impose higher lending standards that are above and beyond those of FHA Guidelines
  • This is the reason why many lenders are requiring higher credit scores during the coronavirus pandemic

The good news is Gustan Cho Associates has no lender overlays on FHA loans during the COVID-19 pandemic. We just go off the automated findings of the automated underwriting system.

Mortgage Rates On FHA Loans During The COVID-19 Pandemic

Many borrowers do not understand why mortgage rates are so high. Why are mortgage rates so high when the Central Bank lowered interest rates to zero percent. Besides high mortgage rates, many consumers do not understand why they need to pay discount points. Yet others do not understand why it is so difficult to qualify for an FHA loan during the coronavirus pandemic. Mortgage rates are very low for prime borrowers. Prime borrowers will get the best rates. What is a prime borrower? A prime borrower is a mortgage borrower with at least a 700 credit scores with 20% down payment and/or equity and financing a single-family home. A prime borrower can get a mortgage rate in the low 3.0% percent range with no discount points on a 30-year fixed-rate mortgage. Prime borrowers can get mortgage rates under 3.0% percent on a 15-year fixed-rate mortgage. However, any borrower with under 700 credit scores will get pricing adjustments and get higher rates. Besides higher rates, they may need to pay discount points. The issue is because there is no liquidity in the secondary mortgage bond markets for borrowers with under 700 credit scores. Until the mortgage markets stabilize, mortgage rates are going to be out of sync for lower credit score borrowers. Mortgage rates and terms are expected to stabilize in the coming weeks and months. The key question is when. Once mortgage rates stabilize, we will have a refinance boom. FHA and VA streamline mortgages will be booming again.

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