FHA home loans remains the most populating mortgage for both first time homebuyers and struggling homeowners who need to refinance their adjustable rate mortgage into a fixed rate. Hope for Homeowners even offers delinquent borrowers with no equity an opportunity to refinance. FHA mortgage rates continue to shock the nation with fixed rate mortgages for thirty-years still below 5%. If you can’t qualify with FHA, consider a loan modification that can reduce your interest rate and your monthly payment just like home refinancing. Recently, many loan modification companies have reported successful mortgage relief with reduced rate terms that enable homeowners to prevent a foreclosure.
The average FHA mortgage rate for a thirty-year home loan dropped below 5% this week.Mortgage Brokers Network executive, Steve Park said, “This is a rare opportunity to revive the mortgage industry because interest rates have dropped to record levels that have not been available for the last forty years.” Homeowners across the country realize this rare financing opportunity, so thousands of borrowers are rushing to lock into this monumental era that could spur a much needed home refinancing boom.
Today, the biggest obstacle for most borrowers is credit. In many cases, conventional lenders have credit score requirements seeking credit scores over 680.In this dried up credit markets, even professionals like doctors or lawyers have found it difficult to qualify for a traditional mortgage. If you’re interested in a refinancing mortgage, it is imperative that you have good or excellent credit and the ability to be able to provide documentation for income that lending underwriters deem sufficient.
FHA still offer a refinancing opportunity for borrowers with good or bad credit can qualify for a FHA home loan that is fixed for thirty years.The most popular FHA loan allowing refinancing is the FHA mortgage that requires borrowers to be at 97% loan to value for the standard FHA rate and term refinancing and 95% cash out refinancing would require home owners to have at least 5% left in your home equity.However in some cases the FHA lender will require two appraisals for cash out refinancing above 85% loan to value.
If you have no equity available because of the declining home value, consider the Hope for Homeowners program insured by FHA.This unique program enables homeowners who have mortgage balances greater than the appraised amount.If you are unable to qualify for Hope for Homeowners, consider a loan modification, because credit scores and late payments will not prevent you from renegotiating your mortgage rate.
FHA continues to carry the mortgage industry on its back in 2009.FHA may have eliminated the FHASecure refinance product, but Hope for Homeowners will help distressed homeowner who have no equity and a mortgage that they can no longer afford.FHA home loan products still allows cash out refinance loans to 95% but now they will need to appraisals to meet HUD’s new FHA guidelines for cash out refinancing above 85% loan to value.
Borrowers with low credit scores may still qualify for bad credit mortgage refinancing, even if they were recently turned down by another lender.FHA continues to expand its loan product base, whether it’s a first time homebuyer loan, FHA streamline or Hope for Homeowners, FHA mortgage rates are low and the terms are usually fixed with no penalty for early pay-off or refinance.Bloomberg Interviews with HUD Secretary Steven Preston
Many people are under the mistaken impression that because Federal Housing Administration (FHA) offers incentives such as low down payments and low credit availability that it will be the new subprime loan. This is not true. FHA home loans remain focused on make sense mortgages and they stress that homeownership is a privilege, not a right. Unlike subprime refinance loans that offer low documentation and no documentation (stated income) loans, FHA loans require full documentation of income.
Other ways FHA separates itself from the subprime mentality include:
oAbolishing seller-funded down payment assistance and upping down payment requirements to 3.5% (the previous requirement was 3%). There have been even talks of limiting FHA cash out from the now 95% back to 85% LTV ratios. FHA has always verified income and offered traditional fixed rate mortgages.
oRequiring that your mortgage payment (generally meaning principal, interest, property taxes and property insurance — PITI) to be no more than 31% of your gross monthly income. Those whose PITI is more than 31% are a much greater risk for default, and ultimately, foreclosure.
oDebt to income (DTI) ratio requirements, which state that your total monthly debt obligation including the mortgage, credit cards, auto loans, student loans, etc., should come to no more than 43% of your monthly income. This is still much more generous than standards set by the government-sponsored entities (GSEs), Freddie Mac and Fannie Mae–conventional loan standards.
FHA makes an exception to the PITI and DTI requirements if you are buying an energy-efficient home. The PITI is increased to 33% and 45% for all ongoing monthly payments. The reason for this is because of the long-term savings in energy costs.
Other FHA Requirements
Credit scores above 620 will probably qualify through the automated application process. Scores below 620 will be rejected in the automated process and will have be processed manually, including an interview with the applicant.Cash out refinance loans rarely qualify at 95% any more.Mortgage lenders contest that FHA likes 85% for cash out refinancing.
With re-established credit, applicants who are still paying on a Chapter 13 bankruptcy filing are eligible after one year and those who filed Chapter 7 are eligible after two years. Conventional lenders typically require a three-year wait after a Chapter 7.
Applicants who have gone through foreclosure are ineligible until at least three years have passed since the foreclosure date. In the interim, the applicant must have reestablished good credit. Any civil judgments must be paid off. Any delinquency on federal debts such as taxes and student loans will disqualify the applicant.
The FHA’s mission is to help those with lower incomes be able to own their own homes. But, borrowers must qualify for the loans. The days of stated income and non-verifiable income loans have ended. Borrowers must now fully document their income and expenses. There are credit score and DTI requirements. Now, a borrower must prove they are actually able to afford the mortgage loan. Going back to traditional lender underwriting standards is the only way to assure that another mortgage meltdown like this one does not happen again.
Investors reacted enthusiastically to the U.S. government’s plans to spend $250 billion to buy stock in private banks. The Dow Jones industrial average rose about 120 points a day after its record 936-point jump. Investors are hoping that these extraordinary steps by the government will help revive the stagnant credit markets. The Dow’s advance Monday by far outpaced its previous record for a one-day advance, 499.19, scored during the last days of the dot-com boom in 2000.
President Bush said Tuesday the government will use a portion of the $700 billion bailout to inject capital into the nation’s major banks, which have been slammed by souring mortgage investments. The move follows a similar one announced Monday by European governments to invest about $2 trillion in their own troubled banks.
Stocks are seeing increases in the Asian and European markets, as well. Hong Kong’s Hang Seng index rose 3.19 percent, after a more than 10 percent increase on Monday. Japan’s Nikkei index, catching up from the country’s market holiday Monday, jumped 14.15 percent — the largest increase ever. In afternoon trading in Europe, Britain’s FTSE 100 jumped 5.57 percent, Germany’s DAX index rose 5.26 percent, and France’s CAC-40 rose 4.97 percent.
Banks appear to be growing somewhat more willing to lend to one another. The London interbank offered rate (LIBOR) for three-month dollar loans fell to 4.64 percent from 4.75 percent, after a 0.07 percentage point dip on Monday. LIBOR is important because many consumer loans, including about half of all adjustable-rate mortgages, are tied to it.Even FHA home refinancing has slowed as borrowers wait to see what the Federal Reserve has up his sleeve.
“This begins to penetrate the core of the problem,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc.But, he said, “There will be a point in time where the euphoria of the bailout plan begins to wear off and the market begins to face reality. And that reality is likely to be a sour earnings season, and that the economy is in recession.”
All we can do is wait to see if the stock market continues its ascent and if banks begin FHA mortgage lending to consumers again. This won’t happen immediately, but at least there seems to be light at the end of the tunnel. At this point, conventional lenders are still not lending to anyone with a credit score of less than 700. If you’re looking to purchase or refinance your loan, FHA loans still remains the best bet.
The subprime market, which has been blamed for sparking the current financial and credit crisis, is pretty much dead and gone. FHA home loans have now become the primary home financing tool for lenders nationally.FHA has upheld their promise to lend to people with little money for down payments and credit blemishes.
The FHA requires a 3 percent down payment (due to raise to 3.5% beginning next January), compared with 20 percent for some conventional mortgages. The FHA also doesn’t require a minimum credit score, although lenders typically have minimum standards in place. But these minimums are nowhere near as stringent as those of conventional loans.For a conventional loan, you need a credit score of at least 660 if you’re putting 20% down and at least 700 if you have less than 20% startup equity. Most lenders who have a minimum credit score requirement for FHA loans will approve someone who has a score of as low as 500, but typically the required minimum is 580. But, that’s a lot less than what conventional lenders are asking for.
On top of that, the government has substantially increased the amount of money that can be borrowed through FHA loans, And, for the first time, FHA is allowing homeowners who are behind on their monthly payments to refinance through the FHA.Nationally, the FHA is insuring more than $24 billion in mortgages a month, up from about $6 billion a month a year ago, a figure that includes purchases and refinances. In metro Atlanta, the number of FHA loans is on pace to more than double this year.
“All of a sudden, FHA has come back in a big way and is a much bigger piece of the pie,” said Walter Moody, a Macon broker who is president of the Georgia Association of Mortgage Brokers.Jan Wagner, president of Canton Street Mortgage in Roswell, said her company began handling FHA loans only this year. But now, nearly one in three of her company’s mortgages are backed by the FHA.
Unlike the subprime market, FHA has measures in place to minimize lender risk for foreclosure.FHA mortgage lenders continue to praise HUD’s commitment to homeownership.“We have consistent guidelines in that we do require borrowers to document income and their ability to pay,” said Charles Gardner, director of the FHA’s Atlanta homeownership center.Subprime loans would allow people to borrow based on what they claimed their incomes were. The Federal Housing Administration (FHA), an arm of the U.S. Department of Housing and Development (HUD), requires borrowers to verify income and submit income tax records. Like conventional loans, FHA is a full documentation loan.
FHA is still the best option for cash-strapped first-time buyers and those who have a credit score of less than 700. Fill out the free loan quote form to see if you qualify for a FHA purchase loan or refinance. Interest rates are low right now, so it’s a good time to refinance, especially if you currently have a subprime adjustable rate mortgage (ARM) or exotic hybrid ARM interest only or negative amortization loan.
Accepting these new criteria was hardly voluntary. The Fed warned the banks: “Did You Know? Failure to comply with the Equal Credit Opportunity Act or Regulation B can subject a financial institution to civil liability for actual and punitive damages in individual or class actions. Liability for punitive damages can be as much as $10,000 in individual actions and the lesser of $500,000 or 1 percent of the creditor’s net worth in class actions.”
FHA mortgage refinance tends to follow the most flexible underwriting criteria permitted under with government and FHA guidelines. When necessary — in cases where FHA loan applicants have no established credit history, for example — FHA allows nontraditional credit, a practice now accepted by most government lending institutions.
Credit History: When considering past credit problems FHA mortgage lenders should review isolated circumstances. For lower–income applicants in particular, unforeseen expenses can have a significant effect on an overall good credit history. When looking at a refinance transaction that pays off past collections and high rate credit card debts, the debt to income ratio would be reduced significantly.
Sources of Income: In addition to primary employment income, FHA, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.
Credit scores. While credit scores can be an analytical tool with conforming loans, their effectiveness is limited with Community Reinvestment Act loans. Unfortunately, Community Reinvestment Act loans do not fit neatly into the standard credit score framework…Given these mortgage lending practices mandated by the Federal Reserve and encouraged by FHA Fannie Mae and Freddie Mac, the resulting financial problems for financial institutions such as Countrywide, Indy Mac, Bear Stearns and WAMU are not that shocking.
FHA insured loans require mortgage insurance to protect lenders against losses that result from defaults on home mortgages. FHA mortgage lending limits vary depending on several factors like of type of home, the state and county in which the property is located.
With a FHA mortgage loan applicant’s credit score is not the primary factor driving the underwriting decision. FHA considers the borrowers entire credit history and specifically look for a pattern of timely payments on their current and past mortgage payments. See more details at www.FHA.com.
I am finding that many FHA lenders are imposing a 580 minimum credit score mandate with FHA home loans. I thought FHA did not use credit scores in their underwriting system. Do you guys know any lenders that still allow credit scores under 580?
With FHA, cash out refinancing is available to 95%. FHA streamline refinance loans, rate and term refinancing and home purchase loans are available to 97.5% loan to value.
Refinance and Avoid a Foreclosure
Don't ignore the letters from your lender Contact your lender immediately.
Contact a HUD-approved Housing Counseling Agency
