FHA loans were designed to help people who aren’t quite ready to get a conventional loan but who have the repayment ability and sufficient credit history to purchase a home or to refinance an existing mortgage. Lincoln Savings Bank is providing outstanding customer service helping family purchase homes in Ames, Ankeny, Grimes, Des Moines and areas all thorough out the Iowa.
FHA standards vary from conventional in the following ways:
- FHA mortgages loans generally make allowances for prior credit problems as long as there is a good explanation and the issue is not likely to continue. Typically the home buyer or home owner can have a lower credit score than a typical conventional buyer however underwriters like to see at least a 620 credit score in most cases. If there are extenuating circumstances and compensating factors an applicant can obtain a mortgage with less than a 620 credit score. The most important thing is that you’ve made payments on time for the prior 12 months. They look for a pattern of timely repayment. If you can show you’ve paid your utilities, cell phone or insurance every month that can help.
- Generally you need to have been discharged for 2 years if you have filed bankruptcy and rebuilt good credit for FHA vs. 4 years for conventional.
- Down payment required for a purchase is 3.5% and a refinance can go as high as 97% of the value of the home. There are several down payment assistance programs available and gift funds from family members are allowed to reach the 3.5%. For example: the purchase price of a home is $200,000. You would need to show $7000 in savings or Government assistance or gifts from family or a combination of all the above. You are allowed to sell off personal property, such as a motorcycle for down payment.
- Typically the family debt-to-income can be higher than conventional and still be approved for a loan. The most important thing is that you can show ability to repay the loan. Sometimes people reorganize their obligations or focus on reducing debt to qualify. Ideally you could expect to pay about 1/3 of your gross income on housing costs and up to approx. 50% of your gross income on your total monthly obligations.
- Mortgage insurance (MI) is collected both upfront and monthly. This allows for a lower interest rate on the loan in most cases. Every borrower is charged the same percentage of MI regardless of their credit score and amount borrowed. Conventional MI is risk based so varies depending on the situation.
- When refinancing FHA will allow up to 85% of the value of the home when pulling cash out for home improvements or to consolidate debt. The conventional limit is 80%.
- The appraiser is a bit more careful to check if the home is up to standards and doesn’t have any safety hazards.
In summary, FHA mortgage loan is an excellent way to get started as a first time homebuyer.
To learn more give us a call at 515-202-3441 or fill out the form above to have a loan officer call you today.