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HOW CAN HUD and the FHA HELP ME BECOME a HOMEOWNER

1. WHAT IS THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT?

Also known as HUD, the U.S. Department of Housing and Urban Development was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD’s primary missions is to create a suitable living environment for all Americans by developing and improving the country’s communities and enforcing fair housing laws

2. HOW DOES HUD HELP HOMEBUYERS AND HOMEOWNERS?

HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, Fair Housing Laws, and housing rehabilitation initiatives.

3. WHAT IS THE FHA?

Now an agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy a home.

4. HOW CAN THE FHA ASSIST ME IN BUYING A HOME?

The FHA works to make homeownership a possibility for more Americans. With the FHA, you don’t need perfect credit or a high-paying job to qualify for a loan. The FHA also makes loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as little as a few months rent. And your monthly payments may not be much more than rent.

5. HOW IS THE FHA FUNDED?

Lender claims paid by the FHA mortgage insurance program are drawn from the Mutual Mortgage Insurance fund. This fund is made up of premiums paid by FHA-insured loan borrowers. No tax dollars are used to fund the program.

6. WHO CAN QUALIFY FOR FHA LOANS

anyone who meets the credit requirements, can afford the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence may apply for an FHA-insured loan.

7. WHAT IS THE FHA LOAN LIMIT?

FHA loan limits vary throughout the country, from $217,075 in low-cost areas to $362,790 in high-cost areas. The loan maximums for multi-unit homes are higher than those for single units and also vary by area.

Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change. Ask your lender for details and confirmation of current limits.

8. WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?

With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan (see Question 47). With new automation measures, FHA loans may be originated more quickly than before. And, if you don’t prefer a face-to-face meeting, you can apply for an FHA loan via mail, telephone, the Internet, or video conference.

9. HOW MUCH INCOME DO I NEED TO HAVE TO QUALIFY FOR AN FHA LOAN?

There is no minimum income requirement. But you must prove steady income for at least three years, and demonstrate that you’ve consistently paid your bills on time.

10. WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?

Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans-such as those set up by a church or community association - qualify, too. Income type is not as important as income steadiness with the FHA.

11. CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?

Yes. Short-term debt doesn’t count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt. Talk to your lender or real estate agent about meeting the FHA debt-to-income ratio.

12. WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?

The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt

13. CAN I EXCEED THIS RATIO?

You may qualify to exceed if you have:

a large down payment
a demonstrated ability to pay more toward your housing expenses
substantial cash reserves
net worth enough to repay the mortgage regardless of income
evidence of acceptable credit history or limited credit use
less-than-maximum mortgage terms
funds provided by an organization
a decrease in monthly housing expenses

14. HOW LARGE A DOWN PAYMENT DO I NEED WITH AN FHA LOAN?

You must have a down payment of at least 3% of the purchase price of the home. Most affordable loan programs offered by private lenders require between a 3%-5% down payment, with a minimum of 3% coming directly from the borrower’s own funds.

15. WHAT CAN I USE TO PAY THE DOWN PAYMENT AND CLOSING COSTS OF AN FHA LOAN?

Besides your own funds, you may use cash gifts or money from a private savings club. If you can do certain repairs and improvements yourself, your labor may be used as part of a down 8 payment (called -sweat equity”). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash.

16. HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO QUALIFY?

The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:

two years have passed since a bankruptcy has been discharged
all judgments have been paid
any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue
three years have passed since a foreclosure or a deed-in-lieu has been resolved

17. CAN I QUALIFY FOR AN FHA LOAN WITHOUT A CREDIT HISTORY?

Yes. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.

18. WHAT TYPES OF CLOSING COSTS ARE ASSOCIATED WITH FHA-INSURED LOANS?

Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan outlined in Question 63. The FHA requires a single, upfront mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing (or 1.75% if you complete the HELP program- see Question 91). This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.

19. CAN I ROLL CLOSING COSTS INTO my FHA LOAN?

No. Though you can’t roll closing costs into your FHA loan, you may be able to use the amount you pay for them to help satisfy the down payment requirement. Ask your lender for details.

20. ARE FHA LOANS ASSUMABLE?

Yes. You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.

21. WHAT SHOULD I DO IF I CAN’T MAKE A PAYMENT ON LOAN?

Call or, write to your lender as soon as possible. Clearly explain the situation and be prepared to provide him or her with financial information.

22. ARE THERE ANY OPTIONS IF I FALL BEHIND ON MY LOAN PAYMENTS?

Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.

For FHA loans:

Keep living in your home to qualify for assistance.
Contact a HUD-approved housing counseling agency and cooperate with the counselor/lender trying to help you. HUD has a number of special loss mitigation programs available to help you: 1-800-483-2209

Special Forbearance: Your lender will arrange for a revised repayment plan which may Include temporary reduction or suspension of payments; you can qualify by having an Involuntary reduction in your Income or Increase In living expenses.
Mortgage Modification: Allows refinance debt and/or extend the term of the your mortgage loan which may reduce your monthly payments; you can qualify if you have recovered from financial problems, but net Income Is less than before.
Partial Claim: Your lender maybe able to help you obtain an interest-free loan from HUD to bring your mortgage current.
Pre-foreclosure Sale: Allows you to sell your property and pay off your mortgage loan ,to avoid foreclosure.

Deed-in lieu of Foreclosure: Lets you voluntarily “give back” your property to the lender; it won’t save your house but will help you avoid the costs, time, and effort of the foreclosure process.

If you are having difficulty with an-uncooperative lender or feel your loan servicer is not providing you with the most effective loss mitigation options, call the FHA Loss Mitigation Center at 1-888-297-8685 for additional help.

 

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What is the importance of the crdit scores, why should we even care about this?  

• More Options available of loan programs, better rates, less down payment
• A 1% difference in the rate of a $200,000 30 year fixed loan will cost an extra $60,840 in money thrown out the windo
• Credit score also affect your car insurance rate, your home owners insurance rate, even the ability to get a cell phone.
• Some employers also pull credit, so it may affect what job you get.

What Factors effect our credit score?

1. Payment History.  Has a 35% impact

• Paying on time has the greatest impact
• Late payments and charge offs are negative
• Missing a high payment hurts more than missing a low payment
• Lates in the last 2 years have more of an impact than old late payments

2. Outstanding Credit Balances

• Measures the ration between the outstanding balance and the available credit
• Keep balances as clsoe to zero as possible, 30% is one level, 50% is another and 75% hammers your score almost as much as a late.
• Better to have 3 $1000 card balances, than 1 $3000
• To raise score, either spread out your balances, or increase available balance, but don’t charge on that new available balance

3. Credit History. Has a 15% impact.

• Measures the length of time a particular credit line was opened.  The longer the better
• Don’t cancel cards that have a long history
• Don’t open new accounts

4. Type of credit, has a 10% impact.  Best to have a mix of auto loans, credit cards and mortgages, rather than just credit cards alone.

5. Inquiries. Has a 10% impact. Each credit pull can cost from 10 to 25 points on a credit score. Once there has been 10 pulls, no more pulls will lower the score more. If you pull a credit report on yourself there is no hit, and all pulls done by mortgage companies in a 14 period counts as 1 pull.

How about mistakes on credit reports, is that an issue?

• 79% of the credit reports contain a mistake of some kind
• 25% of the credit reports contain errors serious enough to result in the denial of credit 

So what kind of errors are we talking about here?  

• 54% of the credit reports contained long outdated, or belonged to a stranger
• 30% of the reports contained credit accounts that had been closed by the consumer but incorrectly remained listed as open.  What do we do about those errors?

You can give me a call and I will give them a very simple process to get all errors off of their credit report.  Here are the 4 steps.

• Make a copy of the report and circle the items you are questioning. Keep your original copy for your own records
• Prepare a letter to the CRA (credit reporting agency) that provided you with the report in question, and request to have the erroneous items removed. If you have proof of payment for an item in question, include a copy of that documentation
• Prepare a letter to the creditor reporting the problem, especially if you feel you are a victim of fraud or identity theft. Inform the creditor that you are disputing an error reported to the CRA, state why the claim is inaccurate, and include any relevant documentation to prove your point
• Send your correspondence via certified mail.

 Could you give me a couple of sample insider secrets on how to raise a credit score? 

• Distribute debt from revolving credit.Our borrower, Mr. Jones, has a credit score of 664. He has five credit cards, but his Visa account is almost maxed out. His other four credit cards have relatively low balances. Mr. Jones moves the part of the debt from the Visa account to the other major credit card accounts, thus distributing the debt more evenly over five cards. This changes the ratio of debt to available credit (which has a 30% impact on the overall credit score), and Mr. Jones successfully raises his credit score by 20 points with very little effort.Example
• Transfer outstanding balances to new accounts.Our borrower, Mr. Smith, has only two credit cards, but both are pushing the limit of available credit. Mr. Smith opens two new credit card accounts, each with a credit limit of $5,000. He transfers part of his existing balances to the new accounts. While he has acquired two new cards that have no established history, the greater impact is the change in the ratio of debt to available credit.

Finally, could you give me some do’s and don’ts during the loan process in regards to our credit?

When you fill out a credit application, we run a credit report for the underwriter. Each lender and each loan program has different guidelines they must follow. You should not do anything that will have an adverse affect on your credit score while you are in the loan process. We know it’s tempting…if you are moving into a new home, you might be thinking about purchasing new appliances or furniture, but this is really not the right time to go shopping with your credit cards. You’ll want to remain in a stable position until the loan closes and give us the opportunity to help you lock in the best interest rate we can possibly get for you.Don’ts:

• Don’t apply for new credit of any kind- if you receive invitations to apply for new lines of credit, don’t respond. If you do, that company will pull your credit report and this will have an adverse effect on your credit score. Likewise, don’t establish new lines of credit for furniture, appliances, computers, etc
• Don’t pay off collections or charge-offs- once your loan application has been submitted, don’t pay off collections unless the lender specifically asks you to in order to secure the loan.. The lender is only looking at the last two years of activity.
• Don’t close credit card accounts – if you close a credit card account, it can affect your ratio of debt to unavailable credit which has a 30% impact on your credit score. If you really want to close an account, do it after you close your mortgage loan.
• Don’t max out or over charge existing credit cards – running up your credit cards is the fastest way to bring your credit score down, and it could drop up to 100 points overnight. Once you are engaged in the loan process, try to keep your credit cards below 30% of the available credit limit.
• Don’t consolidate debt to one or two cards – Once again, we don’t want you to change your ratio of debt to available credit. Likewise, you want to keep beneficial credit history on the books.
• Don’t raise red flags to the underwriter – don’t co-sign on another person’s loan, or change your name and address. The less activity that occurs while your loan is in process, the better it is for you.

Do’s:  

• Do join a credit watch program – your bank, credit union or credit card company may be able to provide you with a free credit watch program that can alert you to any changes in your credit report. This can a safeguard to help you intervene before the underwriter sees the problem.
• Do stay current on existing accounts – late payments on your existing mortgage, car payment, or anything else that can be reported to a credit reporting agency can cost you dearly. One 30-day late payment can cost anywhere from 30 to 75 points on your credit score.
• Do continue to use your credit as you normally would – red flags are easily raised within the scoring system. If it appears you are diverting from your normal spending patterns, it could cause your score to go down. For example, if you’ve had a monthly service for internet access billed to the same credit card for the past three years, there is really no reason to drop it now. Again, make your changes after the loan funds.

Do call your loan consultant – if you receive notification from a collection agency or creditor that could potentially have an adverse affect on your credit score, call us so we can try to direct you to the right resources and prevent any derogatory reporting to credit bureaus.  

 

 Mortgage Matters - Segment 1 [15:25m]: Play Now | Play in Popup | Download

 

 Mortgage Matters - Segment 2 [13:57m]: Play Now | Play in Popup | Download