There’s no perfect time to buy a home. There will always be outside factors that affect your home buying experience, no matter how much you plan ahead. Thankfully, there are a variety of home loan solutions to meet you right where you are financially.
If you need a loan with flexible income, debt, and credit requirements, an FHA loan could be the solution you’ve been looking for.
The Benefits of an FHA Loan
The government-insured Federal Housing Administration (FHA) loan is a beneficial option for those who are looking for more financial flexibility from their home loan.
- Low down payment (as low as 3.5%)
- Minimum 580 credit score required
- non-occupant co-borrowers may be on the loan
- 100% of the down payment can be from gift funds
- The seller can pay closing costs up to 6%
- Qualification with less than two-year rental history
2020 Loan Limits
Increased loan limits, no matter what loan you qualify for, put more power into the consumers’ hands. It also allows those who already own a home to take more cash out of their home’s equity. For many, FHA mortgages offer an opportunity for homeownership that would otherwise be unavailable
FHA loan limits will vary and change as the housing market does. Although there is no guarantee that rates will change from year-to-year, it’s common that they will. To find out what FHA loan limits look like in your county, you can search by location here.
FHA Manual Underwriting
An estimated 4-5% of FHA loans are flagged during the initial assessment, requiring them to be manually underwritten. However, the majority of FHA loans fall under TOTAL Scorecard approval unless the application triggers the system based on risk factors such as the following:
People like to say, “cash is king,” until they need a high credit score. Although it seems like the most responsible choice, a debt-free lifestyle tends to leave even people with excellent cash flows in a tight credit score spot. Lacking sufficient credit history to generate a score will trigger a manual underwriting with the FHA.
Following a financial problem such as bankruptcy or foreclosure, getting a mortgage approval may be difficult. You will have to meet requirements for a waiting period after significant derogatory credit events. If you have satisfied the seasoning requirements, a manual underwrite may lead to loan approval in situations where an automated approval would still be off the table.
The amount of total debt you have in comparison to your overall income is your debt-to-income ratio. Although this factor has a bearing on FHA approval, manual underwriting allows for balancing the ratio against compensating factors that may support an approval. In some cases, home loans can be approved at ratios of 40-50 percent.
It’s important to keep in mind that a manual underwriting review does not necessarily result in a rejection. However, your application could require further discussion, so it will be in your best interest to work with your Mortgage Advisor to demonstrate an ability to pay.
Should You Consider Conventional Financing Instead?
For strong borrowers with great credit, and/or substantial down payments, conventional (a.k.a. conforming) home loans may be a better option for you. It pays to check with both programs and to discuss both options with your Mortgage Advisor to decide which mortgage option will save you the most money in the short and long term.
We understand that no two clients are the same. That’s why we sit down to find the best possible solution for your home loan needs. At The Polder Group, we offer a variety of loans to meet an array of financial differences. Contact Us Today!