Doing The Financial Two-Step

Direct Lender, Bank, Mortgage Broker or Internet, where do we go? I've heard pros and cons from all sides. In a recent meeting with a well respected mortgage broker, I learned of the many various tools at her disposal. One that caught my attention was her information on the beneffits of FHA loans. She discussed that:

FHA (Fair Housing Administration) loans are federally insured loans backed by HUD (Housing and Urban Development).

FHA loans are a great vehicle for buyers with very little down and / or first time buyers. Here are some of the great benefits of doing an FHA loan:

• As little as 3.5% down (can be all gift funds)
  
• Minimum credit score 600
  
• Loan amounts up to $625,500
  
• No reserve requirement (savings history)
  
• Primary residence only
  
• Co-signers OK
  
• Debt to income ratios as high as 50%
  
• $8,000 credit for energy efficiency improvements

After seeing the benefits, you might not understand what this all means. On a standard conventional loan, you are currently required to put down a minimum of 10% down, compared to 3.5% on FHA. On a conventional loan you are also required to have a minimum of 3 months reserves, the reserves consist of the new mortgage payment, property taxes and insurance in an account after the purchase closes.

FHA loans are for the purchase of a primary residence only, (1, 2, 3, or 4 units), but you must live in the property. (no investments properties).

If you have a difficult time qualifying for a property on your own, FHA will allow parents or sibling to help you qualify.

Debt to income ratio means the percentage of your income that is taken up by your mortgage payment, property tax, and insurance or home owner’s dues, along with any additional credit card debt, auto payment or student loans. On a conforming loan the maximum debt to income ratio is 45%, FHA allows 50% (maybe even slightly higher, depending on the strength of the borrower).

FHA offers an energy efficient package up to $8,000 in loan reimbursement. The property is inspected by an FHA inspector who completes a report verifying what items will help conserve energy in the property (new windows, new heater, etc.).

There are some pretty amazing features FHA loans offer that a standard conventional loan does not offer. If you think it might be something you would be interested in learning more about this, please feel free to contact Gina Kemsley with RPM Mortgage; 415.464.3144