Can you qualify for an FHA loan?

FHA loan programs have become popular again as a reliable option for home buyers since the revival of the mortgage industry the past few years. It is a loan program that offers easier qualification and the least amount of down payment. So what do you need to know about it? Here are a few key guidelines:

Down Payment
Minimum 3.5% of the sales price is required from buyer's fund or gift from family member.

Seller Concession
Seller can pay up to 6% of the sales price for closing cost. This does not have to include owner title policy, survey, and home warranty.

Minimum Credit Score
To qualify with 3.5% down payment, your minimum mid credit score has to be 580 or higher. If buyer has 10% down, then the credit score to qualify will be even lower. (We can qualify most buyers down to 580 with 3.5% down payment versus many major banks who cannot due to their own requirements.)

Assets
Most buyers do not need large amounts of assets showing in their bank or retirement fund. Just enough for the down payment will be sufficient.

Appraisal
All properties must pass HUD standards, but that doesn't mean the house has to be perfect. The major items to look for are roof, structure, and foundation. Minor safety hazard items may have to be addressed too, but often are very workable.

Previous Foreclosure or Bankruptcy on Record
ANY previous foreclosure or bankruptcy history on your credit record has to pass at least 3 years from foreclosure date or 2 years from bankruptcy discharged date for consideration.

Purchasing a HUD Foreclosure Home
HUD foreclosure homes are simple and easy to finance with an FHA loan. HUD already has an appraisal for the buyer and, if any repairs are needed, HUD will allow escrow repairs. Not many lenders will work with it, but we do.

Time to Close
Buyers with good solid credit history and income can close their loan as fast as 3 weeks (1 week for option period and 1 week for appraisal and 1 week for underwriting).

JENNY'S TIPS: How to deal with a Bankruptcy

A bankruptcy filing delivers a devastating blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Many consumers who have filed for bankruptcy have been able to obtain a mortgage, although it is often at a higher rate than someone qualifying for a prime or "A-paper" loan.

While credit card companies may care about what happened before you filed for bankruptcy, many mortgage lenders are more interested in your recovery — what you’ve done since your filing. It won’t happen over night, but here are some tips and things to keep in mind when you inquire about a mortgage with a tarnished credit past:

Give explanations

No mortgage lender is going to ignore the fact that you’ve filed bankruptcy and he or she will likely want to know the cause of the filing. Your lender will be particularly interested in whether the same situation could happen again. Your chances of being qualified are much better if your bankruptcy was caused by a single event such as a loss of employment or a death in the family, than if it was the result of “just spending too much.”

If the bankruptcy resulted from a single event, it is important to show your lender paperwork describing the incident, such as the layoff notice or death certificate. You may also want to bring in court documents to indicate when the bankruptcy was filed.

Demonstrate good money habits now

Many people who file bankruptcy swear off credit altogether, however, it is important to re-establish your credit rating. Get a secured credit card or take on some sort of loan — furniture, a car or a major appliance — to demonstrate that you are able to make timely payments. Make sure you are making other payments (utility bills, cell phone, etc.) on time as well. You won't turn things around in a year but your credit score will improve over time.

Dispute any credit report errors

There’s no need to add to your troubled credit history with errors on your credit report. Get a copy of your credit report from each of the three major credit reporting agencies: Equifax, http://www.equifax.com; Experian, http://www.experian.com; and TransUnion, http://www.tuc.com. If you encounter any errors, inform the CRA in writing what information you believe to be inaccurate and request deletion or correction.

Save your money

Lenders may be more willing to loan you money if you’ve saved up a considerable amount of money for a down payment.

Live within your means

Think small when the time comes to look for a home. Smaller homes often mean smaller mortgages.

JENNY'S TIPS: How to Get Your Loan Faster

Five ways to make the loan process go faster

We should say that "working with us" is the first way!  When you let us help you find the loan that's right for you, you truly are taking advantage of some of the area's best technology and expertise to get you a loan decision and funding on your loan quickly.  But here are five "other" ways you can speed up the process of getting a mortgage loan:

1. Have everything ready and in one place.  

You'll find a list of things you might need in support of your mortgage application by clicking here.  If you get them all together and keep them in a safe, portable place like a special pouch or folder, you can cut down on time spent rooting around for things we may need.  Also, you'll help cut down on your own anxiety and confusion.

2. Be honest and complete when you fill out your application. 

"Fudging" your employment or residence history or omitting open credit accounts you'd rather not have considered doesn't increase your chances of getting a favorable loan.  In 100 percent of cases, it makes it harder, and take longer.

3. Respond promptly to requests for additional information.  

During processing, we or the lender considering your loan may need additional information.  Provide it as soon as you get the request, or return the call as soon as you get the message.

4. Be prepared to explain derogatory items in your credit report.  

This is really part of number 2 above.  If you had an illness or a divorce where you missed or made late payments, or you have other instances of late payments or delinquencies on your credit report, be prepared to explain them.  Be honest, and don't be nervous! The loan processor isn't judging you, they're trying to fill in all the blanks in their paperwork.

5. Let the appraiser in!  

The appraisal is one of the lengthiest parts of the mortgage loan process.  Studies have shown that the single biggest factor in appraisal "lag time" is the appraiser's inability to reach the homeowner to make an appointment.  If you're refinancing and the appraiser calls to make an appointment, make it as soon as convenient for both of you.

And remember that the appraiser doesn't want to buy your house.  He or she will say what the house is worth clean and tidy and in reasonable repair, even if you have some dirty laundry on the laundry room floor or dirty dishes in the sink.  Cleaning doesn't get you a higher appraisal!  Letting the appraiser in as soon as possible gets you a loan faster, though.

JENNY'S TIPS: FHA vs Conventional Loans and VA Loans

One of the most popular questions I get asked by my home buyers is "What is the difference between FHA loans, conventional loans (Fannie Mae and Freddie Mac) and VA loans?"  VA loans are available for qualifying Veterans only. 

Here is a general comparison:

                                                                                                                                                

FHA                                 Conventional                     VA Loans

 

3.5% Down                     5% with high                        0% down
Payment                          credit score                     

6% Maximum                  3%                                         6%

Contribution

for closing cost                  

Up Front Mortgage         No Upfront MIP                Varies depends

Insurance Premium                                                 on Veteran's status

(MIP) Financed into

the Loan                                                                                     

 

 

Monthly Mortgage         Monthly Mortgage                 None

Insurance                        Insurance with 20%

                                       Down

580 minimum                 Higher credit score               620 typically

credit score                     required                           

                                                                        

Max 1 FHA Loan            Max 4 Loans:                        Depends on

per person on                  1 Primary Residence           Veteran's entitlement  

primary residence           3 Investment Properties

These are general guidelines. Borrowers should be reviewed on a case-by-case basis. In today's market, mortgage guidelines are constantly changing as regulators try to "fix" the industry. The trend is that mortgage qualifications will only get tougher.  Best to talk to an experience loan professional and do a pre-qualification analysis. 

JENNY'S TIPS: How to Dispute Errors on your Credit Report

Your credit report is a record of your credit activities. It lists all of your credit card accounts and loans, the balances as well as your payment history. It also shows if any action has been taken against you because of unpaid bills such as a lawsuit or bankruptcy filing. Because businesses use this information to evaluate your applications for credit, insurance and employment, it’s important that the information in your report is complete and accurate, especially if you plan to make a big purchase like a home.

The Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission (FTC), is designed to promote accuracy and ensure the privacy of the information used in consumer reports. Under the FCRA, both the credit reporting agency (CRA) and the organization that provided the information to the CRA (usually the credit card company) must correct any errors or incomplete information in your report.

If you do encounter a mistake on your credit report, several steps need to be taken to correct the matter:

1. The first thing to do is get a copy of your credit report from each of the three major CRAs: Equifax, http://www.equifax.com/; Experian, http://www.experian.com/; and TransUnion, http://www.tuc.com/.

2. In a written letter, tell the CRA what information you believe to be inaccurate. Include copies (not originals) of documents that support your position. Provide your complete name and address, identify each item in your report you dispute, and request deletion or correction. Be sure to make copies of your dispute letter and enclosures.

3. Send your letter by certified mail, return receipt requested, so you can document what the CRA received.

Mortgage Case Study: Home Buyer with 580 Credit Score

We closed a FHA loan with a home buyer that has a mid fico score of 580, which is below the current standard now of 640. The process does require more planning for the loan officer and buyers.

Here are the things we evaluated: (The best plan for a real estate professional is to work with a loan officer to evaluate the buyers ability to purchase a home, or just contact us.)

Credit - Their credit of course is less than ideal, but one major factor not listed on the credit report is their rental history. They had an excellent rental history and no collection or charged offs from any apartments they ever lived.

Assets - I recommended them to have (on top of their down payment) at least 2 months PITI (principle, interest, taxes and insurance) saved in any of their retirement, 401K, checking, or savings account.

Bank Statements - Bank statements took time to plan and execute. I reviewed their most recent 2 months statements and it is obvious they are spending more than what they made. Underwriters will view that as failure for the home buyers to budget their finances, and therefore cannot afford to purchase a house. I sat down with the buyers and worked out a budget for them to follow. After 2 months following the budget, they closed on their loan and were very happy.

I sincerely believe home ownership is for everyone. It does take planning, working the plan, and willingness to change your life style to fit a mortgage into the budget.

SUCCESS STORY: Home Buyer with Low Credit Score Buys $284,000 House

A JENNYLOANS.COM SUCCESS STORY
Home Buyer with Weak Credit but Strong Rental History Buys House

One of our clients closed a mortgage loan today, even though his credit score of 619 is 21 points below most lenders' standards. This client is a perfect example of how planning, strategizing, and taking action helped him reached his goal of buying a new home. The process started 3 months ago when I evaluated his income, assets, and credit. They were living in a rental house with $1,400 rent and $400 utility bill. Even with a low credit score, we found several positive traits (lenders would call it "compensating factors"):

-Low debt-to-income ratio

-12 months verifiable rental history through cancelled checks

-401K available for down payment

-Good employment history

With all this considered, he purchased a house for $284,000 and is moving in today! Is your credit good enough to purchase a house? Not every situation is the same, but contact me and we can evaluate your options.

NEW YEAR, NEW HOME! Tips for Buying A New Home in 2011

If your New Year's Resolution is to buy a new home this year, then you need to follow these five steps to help you qualify for a mortgage.

The past few years have been rocky times for the real estate industry, and most lenders have tightened their lending standards. Is it still possible for most people to own a home? Absolutely! Mortgage and real estate industries are ever changing, especially in today's economy and era of government compliance, but you can prepare yourself with the right information. And get help from a loan officer who understands the new rules.

Many realtors and home buyers often call me and ask how to qualify for a mortgage. Well, the process has changed drastically over the last 2 years. I have to honestly say I am glad for the change in order to bring stability back to the market. We are now back to common sense lending. Getting a mortgage and borrowing a huge amount of money should not be a one day process. Buying a home should be planned. It is not complicated or difficult. It is simply the right planning with help from an expert. So what should a home buyer plan for? Here are the basics:

1. Take the time to talk to a Licensed Mortgage Loan Officer. A 20-minute consultation will map out a good plan of action to help you purchase a new home. A good loan officer should not take more than 1 day to get back with you.

2. Evaluate your credit with a Loan Officer. All lenders have certain fico score requirements. Although most lenders require a minimum 640 fico score, there are some lenders who will accept a score as low as 580 as long as you have a documented rental history. If your score falls below 580, a good loan officer will offer advice in what you need to do to improve your credit score.

3. Evaluate debt-to-income ratio with a Loan Officer. Most lenders can only accept no more than 50% debt-to-income ratio. This means all minimum monthly payments listed on the credit report plus projected new mortgage payment with PITI (principle, interest, taxes and insurance) should not exceed 45% to 50% of your income. Utility bills are not included.

4. Money for down payment. All FHA loans require minimum 3.5% down payment. The money can be from your savings and checking account, 401K, retirement, gift from relatives, and tax refund. The money should be traceable and documented. A good loan officer will evaluate 2 months of recent bank statements and inform you of any red flags.

5. Ask the Loan Officer about all the costs involved in purchasing a home. In most situations, home buyers should plan to pay for the inspection fee, appraisal fee, and earnest money when making an offer. When it comes to home buying, never under-estimate the power of preparation.

Of course not everyone's situation is the same. Self employed business owners are different than W-2 paid employees. You may have spotless credit. Some people have foreclosures on their credit, and others have bankruptcies. Anyone can qualify for a mortgage but planning a strategy and setting a realistic time frame will be different for everyone, so it is very important to work with an experienced loan officer who can help you plan and guide you through the home buying process.

New FHA Lending Standards

Starting in early summer, the Federal Housing Administration is tightening lending standards in an effort to bolster its dwindling reserves. The new lending standards will make it tougher for some prospective buyers to purchase a home by requiring a higher down payment than the typical 3.5 percent for some borrowers, higher insurance premiums and reduced seller concessions.

Securing FHA-insured mortgages are attractive to borrowers because down payments are only 3.5 percent. Most conventional loans now require 20 percent down, keeping many creditworthy borrowers on the sidelines.

New Guidelines

The new rules — which are temporary and take effect this summer — come after more than a year of stringent standards from lenders. Among them:

Better Credit Score — New borrowers will have to have a minimum credit score of 580 to qualify for a 3.5 percent down payment. Previously, there was no minimum score. Those with lower scores will have to make at least a 10 percent down payment. The average credit score of FHA-insured borrowers is 693.

Higher Insurance Premiums — Buyers who get an FHA-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of total loan amount, up from 1.75 percent now. A $100,000 mortgage would require a payment of $2,250, or $500 more. But buyers can roll the added cost into the loan amount.

Reduction in Seller Concessions — Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent.

FHA removes anti-flipping rule

Another FHA rule change could help foreclosure-plagued markets like Las Vegas, Phoenix, Miami, Detroit and Los Angeles, making it easier for investors to “flip” houses to buyers who use FHA-insured loans.Effective Feb. 1, the federal government will waive for one year an FHA anti-flipping rule that prohibits insuring a mortgage on a home owned by the seller for less than 90 days.The new rule lets investors buy today and re-sell as quickly as possible. The move is to allow REO homes purchased by investors to resell as quickly as possible, helping stabilize real estate prices and revitalize neighborhoods after the U.S. housing market collapse.This new rule will open up a new pool of homes to buyers. Waiving the 90-day flip rule is being heralded by many real estate investors as a boon to their ability to buy, rehab and resell foreclosed homes on a more efficient time line.

(Article courtesy of RealtyTrac newsletter)

What to know before you go house hunting

Would it surprise you to know that your Realtor would prefer to work with clients who have their pre-qualified letters ready rather than working with clients who don't? As a Realtor, it is his or her responsibility to find the perfect house for you no matter how many miles they have driven, how much money spent on gas, and how much time invested into finding you that dream home. So before you start house hunting, here are some financial tips to make sure you're ready to get a mortgage:

1. Make a chart of your current income and expenses. How much can you budget for your mortgage payment every month with principle, interest, taxes and insurance (PITI)?

2. To ensure your loan gets approved, your mortgage should be no more than 38% of your gross income (NOT NET AFTER TAX DEDUCTION), and your total monthly mortgage payment plus all payments based on your current debt should not exceed 48% of your gross income (do not include your utilities). And a smart tip: just because you can get approved for more than your budget doesn't mean you should try to buy more.

3. Be prepared to explain any length of time when you were unemployed.

4. Know your credit. You can get a free credit report once per year for free. Go to http://www.annualcreditreport.com/ and get yourself a free credit report. If you have many delinquencies on your credit report in last 12 months, then it may be difficult for you to get an approval.

5. How much money do you have in reserves? The minimum FHA mortgage requires 3.5% down payment from the sales price. The USDA Rural program does not require any down payment, but you should still have some money in savings. The more reserves you have, the better off you are in dealing with life's many unexpected events.

6. The most important tip is to work with a licensed loan officer/mortgage consultant before you start looking for your new house. They can assess your financial situation and if you're ready, provide a pre-qualification letter that your Realtor will need. You should consider working with someone who has many years of experience, knows and understands underwriting guidelines, and most of all, is dependable and there when you need them. They answer the phone or get back with you within a reasonable amount of time. You should never have to chase down your loan officer.

As a first-time home buyer, there are many uncertainties that lie ahead. You should be able to rely on your Realtor and your mortgage consultant to help you every step of the way.

Don't forget about taking advantage of the $8,000 tax credit for first-time home buyers, including buyers who have not owned property in last 3 years, that gives you cash in your pocket. This program is set to expire November 30, 2009... so ACT NOW!

Questions? Contact Jenny Phung at 972-731-0165, email jenny@jennyloans.com, or visit my website at http://www.jennyloans.com/.