The home buyer sees an ad on the internet for guaranteed 5 day closings, no minimum score and stated income from a "lender". Oh the hilarity! Unfortunately it can also end with a home buyer, home seller, a couple of real estate agents and their brokers, and a few other people doing a lot of work for nothing. Many outrageous claims are made by lead generation companies who sell the information to dozens or more loan officers who will call, email, fax, or email.
If it sounds too good to be true and every true mortgage professional is telling you there is something wrong with what one particular company or person is offering you can pretty much bank on it: it's smoke and mirrors designed to hook the buyer in and hope they'll get so far in they feel compelled to continue. They will, too, threatened by that ominous closing date on the purchase agreement and they will ride a bad loan all the way to the closing table then be strapped with it for years.
In defference to some wild claims about FHA I have read lately here are five facts every buyer and agent needs to know:
1. FHA does mention credit scores but lenders have overlays and almost every lender requires a minimum middle credit score (not necessarily the FICO score) requirement is 620. Some lenders even require a 660. There are no major lenders actively closing loans with credit scores lower than 620 and only a very few broker type lenders closing down to a 580.
2. FHA does not make loans they insure loans. The loan is actually made by lenders and often sold to Fannie Mae or another major pool investor. The only time FHA actually sees the loan is after it is closed and the files are sent to them for their insurance records. Most bigger lenders are called Direct Endorsement (DE) lenders and they make the actual decision.
3. FHA does not make loans to people with bad credit. FHA was never intended for bad credit borrowers. While it is true they do have less stringent guidelines than some conventional conforming loans it is not true they accept people who have neglected their payments and have been careless with their credit over the years.
4. FHA does finance rehab, upgrades and other construction costs to existing homes. In fact the FHA 203k streamline is a much underused FHA loan product. Many lenders do not offer this loan and the majority of loan officers do not know how to structure the FHA 203k streamline which offers up to $35,000 in costs.
5. FHA does offer a special loan with only $100 down payment required on HUD owned foreclosure homes. This is also something often overlooked and not offered by many lenders. Ask your local FHA home loan specialist about the HUD $100 down FHA home purchase loan - which is only valid for primary home owners, not investors.
There are a hundred other FHA facts and there is a growing list of "Myth's Busted" at Mortgage Myth Busters where you also can ask a question. Or, as you may have noticed, on the original publication page for this posting at Active Rain there are three ways to immediately contact the author.
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I started writing on Active Rain in 2006 when I was representing the mortgage industry. I am no longer in that industry and many of the older posts contain outdated information. Please do not contact me for LENDING or MORTGAGE questions but rather contact a licensed mortgage professional from your area. I have always been in marketing and branding and that is still what I do. Thanks for reading!