The first program and you probably have heard of it is FHA. FHA has been around since the 1930s. It was designed to increase home ownership, and reduce the required down payment. Today it still accomplishes these goals plus some. FHA today is used for first time home buyer, credit challenge borrowers, and borrowers with no credit scores. FHA is also a valuable program for borrowers who are looking to refinance their homes.
FHA does have credit guidelines, but they do not look at credit scores. What is the difference you are asking, for example you can have a 540 FICO score which is a low score, but as long as you have not had any collection, judgments, or bankruptcies in the last twenty four (24) months there is a very good chance you will qualify for a mortgage with FHA. Bankruptcy, FHA does allow borrowers who have filled for bankruptcy. Generally the bankruptcy has to be discharge for twenty four months, but under extenuating circumstances it is possible to get an FHA mortgage after only twelve months after the bankruptcy has been discharge. But you will need to document the reason for the bankruptcy, and the reason you filled must be out of your control.
Qualifying for an FHA mortgage is simple. First your debt to income ratios should be no more than 32/44. The first number is your housing ratio. The percentage of your monthly income going out to the proposed housing payment including, taxes, insurance, monthly mortgage insurance premium (MIP), and any homeowner association dues (HAO) – the second number is referred to as the total debt to income ratio. This is the total percentage of your income to total debt including the proposed housing payment. FHA does allow a non-occupying co-borrower as long as this person is a family member by blood or marriage. For example if your debt ratios are to high to qualify for the home you want to purchase you could use a non-occupying co-borrowers income to qualify for the home you want. Also if your FICO score is in the low 500s adding a non-occupying co-borrower with good credit scores will strengthen the over all loan.
Second are the credit requirements, and these are only general rules. FHA really has no set credit guidelines and allows for exceptions with documented extenuating circumstances. FHA is normally looking for no credit collection (medical collections are always overlooked), no judgments, and no bankruptcies in the last twenty four months (24). If you have no credit this ok as well, but you will need to provide your loan officer with nontraditional credit, acceptable nontraditional credit references include the following utility bills, phone cell or land line, cable, and auto insurance. You will need to provide three accounts with a twelve month payment history for nontraditional credit trade lines.
Third is down payment. FHA does require a down payment of three and half (3.5) percent, conventional mortgages require at least five (5) percent down with minimum credit scores of 640. However the down payment can come from a gift from a friend or family member. There are also local grants, or bond money that are acceptable forms of down payment. So it is possible to get your down payment paid for. Plus the seller can pay up to six percent (6%) of the total purchase for closing cost , and pre-paid items such as taxes, insurance and days of interest.
FHA has very competitive rates. Mortgage rates change daily, but on most days FHA has the same rates as conventional loans, so FHA borrowers are getting the same rate on a thirty year fixed mortgage as someone with excellent credit. FHA also has lower mortgage insurance premiums than conventional loans. Mortgage insurance is paid to the lender anytime a loan to value is greater than eighty (80) percent it is to protect the lender in case of loan default. Conventional mortgage insurance is based off credit score and loan to value. Rates start at fifty basis points (.0005) of the loan with excellent credit, and goes has high as two points (.02) percent. FHA has a upfront premium that is financed into the loan of one and three quarter (1.75) percent, and a fixed mont
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