What Is An FHA Loan?

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.

Loan Details

  • 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:

Cash Lifestyles

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.

Financial Shortfalls

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.

Debt-to-Income

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!

Your HomeReady

 

Segments of the potential mortgage market are completely ignored by some lenders. Not only is this a poor business choice, but ignoring certain populations can be seen as a discriminatory practice by regulators. At PRM, we want to serve all communities and bring the dream of home ownership within reach. Through Fannie Mae’s HomeReady program, we can help you to grow your business in underserved communities for credit-worthy clients with low to moderate income. With flexible income guidelines not seen in other conventional programs, HomeReady helps PRM to assist you in bridging the gap for clients who otherwise would have limited financial options. Segments of the potential mortgage market are completely ignored by some lenders. Not only is this a poor business choice, but ignoring certain populations can be seen as a discriminatory practice by regulators. At The Polder Group, we want to serve all communities and bring the dream of home ownership within reach. Through Fannie Mae’s HomeReady program, we can help you to grow your business in underserved communities for credit-worthy clients with low to moderate income. With flexible income guidelines not seen in other conventional programs, HomeReady helps The Polder Group to assist you in bridging the gap for clients who otherwise would have limited financial options.

 

HomeReady Flexible Income Guidelines

 

  • Rental income acceptable
  • Boarder income acceptable
  • Non-Occupant Co-Borrowers acceptable
  • Expanded eligibility for lower income families by potentially using income derived from occupants other than the borrower as a compensating factor
  • Flexible DTI requirements
  • HomeReady increased home affordability in other ways, with low down payment options, which can be less than the required amounts for FHA loans. Additionally, your client also doesn’t have to be a first-time homebuyer, and properties can be more than 1 unit.

 

In order to qualify for the HomeReady program, your client must meet income requirements for the area the subject property is located in.  For low-income census tracts, there are now income limitations. Income limitations by area can be viewed

Here.

https://www.fanniemae.com/singlefamily/homeready-income-eligibility-maps

 

 

If you have a client you think might benefit from the flexibility of the HomeReady Program, contact The Polder Group Today.