We are now moving into a volatile market and more than ever, you need to be working with a mortgage professional that has your best interest in hand. Sometimes easier said than done. But what can you do about it?
I have always said that no question is a bad question.
If you don't think that your credit is better than average, then more than likely, you will fit into a FHA Mortgage than a conventional mortgage. This is a lot easier to state now than just in the last year because of several major changes to conventional loans. But why don't you hear about the differences? Here are some of my thoughts.
- The lender is not FHA approved. You need to ask your loan officer if they are approved and licensed FHA. But how can you trust anyone these days, even family members. I am very serious about this. You can call HUD or visit their web site to see if that lender is approved FHA. HUD site : http://www.hud.gov/ll/code/llplcrit.html
- Many loan officers don't know much about FHA and how it works. They are use to conventional loans or subprime loans. Why is this? Because you typically need to do more than just input the loan into the underwriting system. See, on a conventional loan, if you put it in the system and it says approved, you are basically done with it. In regards to FHA, it will usually come back with refer, but FHA loans can be manually underwritten. And you need to truly understand the credit guidelines and what are compensating factors to get your mortgage approved.
HUD/FHA has been around since 1934. It's a proven agency helping homeowners achieve the American Dream. Just recently, it's been much tougher to get the best rate under conventional standards. Just a little secret that I would like to share with you. FHA is not a monster or a bad loan as many have classified it. Bad rumors. The FHA rates are exactly the same as conventional rates and sometimes better. Appraisals are done the same as a conventional appraisal. This has been like this for 5 years or more now and aren't scrutinized as in the past. Here are some other things to arm yourselves with when shopping with a lender.
- If your home that you are refinancing or purchasing is in a declining market or there is an oversupply, this will be a problem with conventional loans. You will be penalized at least 5%, meaning that your LTV will be reduced at least 5%. This is not the case with FHA loans.
- FHA in most cases is not credit score driven. But with many lenders, you need at least 2 scores above 500. But with conventional mortgages, the lower the credit score, possibly the higher your rate. And if you ever have a loan officer tell you that you fall into another type of FHA category because of your credit, this is FALSE. They are lying to you. There aren't any tiers for rates as of yet. They are working on this though. Please check back to my home page for updates.
- And lastly, as I mentioned above, if you are putting less than 30% down and have a credit score less than 680, you will be penalized also. I will tell you this, that your conventional rate will be at least 3/8% higher than the FHA rate just based on this information.
Conclusion : Just be aware of what you are being told and advised. Do a little homework, depending on how you came across that lender and/or loan officer. I hate to use the word sales person, but that is what many of these loan officers are, just sales people. Some may seem nice, but they will tell you what you want to hear. And one more piece of advice. If the loan officer doesn't send you a Good Faith Estimate within 24 hours of speaking to them, this is usually a red flag. But there is more to a good faith estimate than just a bunch of figures. Don't always believe the piece of paper that it is written on. I will go into more details at another time. I just wanted to make you aware of this.
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