There is help out there!
In today’s volatile lending market there is an old standby that is moving forward to a new place in American finance…. it is the FHA loan.
The History of the FHA: The Federal Housing Authority was set up after the depression of the early 1930’s to help Americans recover from the tremendous numbers of foreclosures during the depression and get Americans back into home ownership. Prior to the FHA there were not 30 year loans generally available; people were financing homes with 5 to 10 year loans. FHA may be doing the same thing now as traditional lending goes through its changes. Initially and for most of the history of the organization it was completely self-funded and did not rely on any taxes for its operating capital. It was funded initially by mortgage insurance premiums and appraisal fees. It took till this year for the FHA to come to the Government to help make up a budget shortfall. The predictions are that the FHA will recover as it is the only option for credit challenged borrowers, and is writing a record number of loans.
Today’s FHA We have seen conventional loans tacking on rate increases for borrowers with lower credit scores. A couple of years ago anything above 600 was considered decent while now some lenders are adding 1/2 a point to the interest rate on 30 year fixed rate loans for borrowers with credit scores between 650 and 680 and 1.25% added to interest rates for borrowers with credit scores between 620 and 650. Below 620 is considered “subprime” and the rates rise dramatically. Yet FHA will still make loans to borrowers with credit scores as low as 580. These are 3% down loans with interest rates fluctuating between 6 and 6.25% 30 years fixed. FHA has recently started charging a premium based on credit scores as well. The loan amount has increased to $346,250 recently in most of metro Atlanta. It may now be a better deal for not only credit challenged buyers, but for the mid-range credit purchaser with 650-680 credit scores.
There is a one-time mortgage insurance premium of 1.75% of the loan amount which can either be paid in full at closing or added to the loan amount and financed, and then there is a monthly mortgage premium which is 1.1% of the loan amount per year, (1/12 of that paid each month). Conventional loans also have mortgage insurance.
Some of the Guidelines for FHA insured loans after Bankruptcy or Foreclosure
FHA INSURED LOANS are available to people who have had both bankruptcies and foreclosures in their past. There are some restrictions; the borrower must have virtually perfect credit since the bankruptcy or the foreclosure. These loans are also subject also to normal qualifying guidelines with income and debt limitations.
Chapter 13 Bankruptcy There must be 12 consecutive months of on time payments on all accounts (including utilities, cell phones etc.) from the filing of the chapter 13 bankruptcy.
Chapter 7 Bankruptcy There must be 24 months of perfect credit from the disposition of a Chapter 7 bankruptcy.
Foreclosure There must be 3 years of perfect credit from the foreclosure.