Tag Archives: Home Loan Programs

100 Percent Mortgage Financing – Qualifying for a FHA Loan

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If looking for a no money down or 100 percent mortgage financing, you have several options. Understandably, many homebuyers have little cash on hand for a down payment. Because of the increase in home prices, saving the typical 20% is practically impossible. Fortunately, FHA home loan programs offer 100 percent mortgage financing, which eliminates the need for a large down payment. Here are a few tips on qualifying for a FHA home mortgage loan.

Employment Guideline for Getting a FHA Mortgage Loan

FHA loans are very flexible. Still, before approving a homebuyer for a FHA loan, the lender will carefully review several factors to determine whether they are an ideal candidate for a mortgage loan.

To acquire a FHA loan, lenders require steady employment. Usually, this involves two years of continuously working. It helps to maintain the same employer throughout the two years.

Individuals who change employers every four to six months or those who only held employment for half of the 24 months may have a hard time getting approved for a FHA loan. If unemployment was due to layoffs, illness, or other legitimate excuses, the lender may consider the applicant for approval.

Credit Guidelines for FHA Loans

When reviewing a homebuyer’s application for a mortgage loan, the lender will look at all credit activity that has occurred within the last two to three years. Concerning late payments, applicants cannot have more than two 30 days late payments within a two year period.

Bankruptcies must have a discharged date of at least two years. Furthermore, foreclosures must be at least three years old. In both cases, mortgage lenders require that homebuyers have begun re-establishing credit and building a good credit history.

Income Guidelines for FHA Loans

To qualify for a FHA mortgage loan, lenders will evaluate combine household incomes and other consumer debts (auto loan, credit cards, student loans, etc) to ensure that the mortgage payment does not exceed 30% of income. However, FHA loan lenders are flexible in this regards. Because of rising home prices and modest incomes, lenders may approve loans that exceed 30% of the homebuyer’s income.

FHA Home Loans Subject to New Regulations

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Since late 2009, the FHA has been discussing implementing new changes to their FHA home loan programs, and on January 20, 2010, these changes were approved. The FHA decided to make changes to their program after a 2009 internal audit showed that their reserves had dropped to a level that was about a quarter of the amount required by Congress.

FHA Under Scrutiny
Before the internal audit became public, many people were already questioning whether the FHA was too lenient with their approval guidelines. There was no minimum credit score set for applicants, though most lenders required a 620 score, and they required a down payment of only 3.5% on purchases. Some said that the FHA home loan program was too similar to the subprime loans of the past in that it allowed credit to be extended to non-creditworthy borrowers.

Although some components of the FHA program are similar to subprime loans, this is not a legitimate comparison to make. Subprime loans were issued to people who could not afford the loans. FHA loans require full documentation of income, employment, and assets in order to ensure that, even if the applicant has less than perfect credit, they can still afford the loan payments.

Goal is to Increase Reserves
Announced by David Stevens yesterday, the largest change implemented for FHA home loans is a.5% increase in the up front mortgage insurance premium. Previously, this premium was 1.75% of the loan amount; this change increases it to 2.25%. The increase will affect premiums on all FHA loans, except for the Home Equity Conversion Mortgage (HECM), and will help increase the FHA’s dwindling reserves.

FHA Reduces Risk
In addition to increasing the up front mortgage insurance premium, the FHA is reducing the maximum seller concessions from 6% to 3% of the loan amount. They have also added credit score requirements to their approval guidelines. They now require least a 580 in order to be eligible for the 3.5% down payment. If the applicant’s credit score is below a 580, they will have to contribute at least 10% down.

FHA Increases Accountability
In order to make certain that lenders do not issue loans to people who cannot afford them, the FHA is going to publicly report performance rankings of each lender. The purpose of this endeavor is to hold lenders accountable for their own lending practices.

The FHA also intends to make lenders meet a more stringent set of criteria in order to continue issuing FHA loans. This is an effort to help ensure that they are consistently acting in the best interests of both the FHA and the client.

These regulations will begin going into effect on loans that have case numbers assigned on or after April 5, 2010. A case number is assigned the first time an applicant receives a quote for an FHA loan. If these efforts serve their purpose, they will take the scrutiny off of the FHA loan program and allow them to continue contributing to a healthy housing market in the US. Hopefully, these new regulations will also significantly increase the FHA’s reserves and give homeowners opportunities to continue taking advantage of the FHA home loan program in the future.