Here's a great article from Aaron Gordon (published with permission):
"FHA LOAN LIMIT RAISED TO $400K AND HOW THIS HELPS YOU"
March 6, 2008 (newsletter sent via email)
Today, the announcement came that the FHA loan limit in Clark County was raised to $400,000. This is great news for all of us and the market. In Nye County, it was raised to $325,000.
This makes 100% loans, all the way up to a sales price of $412,000, readily available for most buyers once again.
I know many of you haven’t done an FHA deal in years. It’s time to get a refresher course.
Some experts locally are predicting that 50% of all loans this year will now be done FHA.
If your preferred lender doesn’t do FHA today, you need to find one who does as a back-up. We have two designated FHA underwriters in our branch.
In my opinion, it is very important for your business today to have a lender who knows FHA and has local underwriting. Many FHA loans, that seem challenging, are ultimately decided by the underwriter.
I was asked to speak on FHA recently. I compared the process to how you would imagine lending was back in the day when you knew your banker, he knew you, and he made the loan based on his belief in you to repay the loan.
FHA underwriters usually look at the overall merits of the loan. If they believe in the borrower’s ability to repay, regardless of the borrower’s past, they usually have the leeway to make the loan.
If you would like someone to come speak to your office on FHA, please let me know and we will arrange that for you.
Here is what else you need to know.
FHA loans have very competitive interest rates because the Federal government insures the loans for lenders. In today's credit crunch, this single issue may outweigh all others.
FHA loans have lower down payment requirements. Plan on around 3%. You can get 100% gifted to you from a family member or seller for down payment and closing costs.
There is no “soft market” rule on FHA. 100% financing and gift can apply.
The mortgage insurance is usually less on FHA loans than conventional loans.
Primary residence only. Full documentation of income only.
Bankruptcy and foreclosure are looked at far differently.
You can be in a Ch. 13 bankruptcy and possibly buy a home or refinance so long as you have been making your BK payments on time for a year.
FHA wants to see you two years out of Chapter 7 BK. However, if you can show that it was an extenuating circumstance and prove that you have been solid since, you can sometimes get the loan only one year out of the Chapter 7.
Same with foreclosures. They want you to be three years removed from foreclosure before you are qualified. However, if the foreclosure was the result of circumstances beyond your control, you may be able to get a loan a year later.
Medical collections have to be addressed but usually not paid.
You can have a non-occupant co-borrower help you qualify.
You can get up to 6% seller help, on top of the 3% gifted down payment, for closing costs.
FHA isn’t credit sensitive. You don't have to have perfect credit to get an FHA mortgage. You don’t even have to have a credit score.
In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan. You can have credit scores as low as 500, still put just 3% down, and get the same rate as someone with a 700 credit score.
Declining market areas do not affect FHA mortgages as they do conventional mortgages. There is no "soft market" appraisal rule that reduces loan to values by 5% or more.
FHA debt to income ratios are aggressive. Although the guidelines say they are at 31%/43%, these can go up to sometimes up to 40%/50% with good compensating factors like a good rental history, low payment shock, more down payment, lots of reserves, etc. I have even seen some go to 55% on a strong loan.
If your borrower has compensating factors, they can make even the most challenging borrowers acceptable.
There are a few things to be cautious of.
Many of the homes sold today are those owned by a bank that the bank acquired in a foreclosure. FHA currently has an anti-flipping rule in the first 120 days of acquisition and, although many banks are exempt, some transactions can be affected by this.
In addition, some banks won't accept offers from your FHA buyers.
The bottom line is today’s announcement clearly makes FHA the preferred loan choice for nearly every buyer unless they are looking for a home over $412,000 or they have to go with a stated income loan. It’s important to know.
