Some facts about FHA
Through all of the changes in the mortgage industry, the one shining light is that FHA has recently gone through a huge revamping. This is good news because as the other lenders either go away (close their doors) or substantially tighten their guidelines, FHA has opened doors that the other lenders have closed. As of today, FHA and VA are the only loans that your buyer can obtain 100% financing and have the seller contribute to closing costs. The buyers can essentially purchase their new home with no money out of their pocket. Conforming loans like “My Community” which up until earlier this year used to do this, now they require at least 5% down or more and substantially higher credit scores. That is because the private mortgage insurance companies no longer want the liability of 100% mortgages. If they won’t insure them, the lenders won’t do them.
Also conforming loans are now risk rated. Anyone with a credit score under 680 will pay more, period. This is an upfront fee that most of the lenders roll into the rate. It is anywhere from 3/4’s of a point to over 2 points in fee. Over half of the buyers have to pay this. As of this writing FHA and VA don’t do this.
FHA has higher ratio limits than conforming loans. (more debt allowed)
FHA has adjusted their appraisal guidelines (more in line with conventional financing)
FHA allows for gift funds for down payments (thus 100% financing)
FHA doesn’t take longer than conventional financing.
FHA allows for non traditional credit in the absence of a credit score
FHA allows for undeclared secondary income (up to 20% unverifiable)
Here is some interesting statistics from HUD:
SINGLE FAMILY OPERATIONS
April 1-15, 2008
Department of Housing and Urban Development, Housing – Deputy Assistant Secretary for Finance and Budget, Office of Evaluation Page 1 of 5
· Another new high! The seasonally adjusted annual rate continued its climb and was recorded at 2,314,000 — 15 percent above the prior period and three times higher than a year ago when the rate was 742,100.
· This is an average of 9,146 applications per work day -much higher than for late March — 7,957.
· Of the total, 52,011 were purchase cases, 50,170 refinances and 6,314 reverse mortgage applications.
· During this reporting period, 48,848 mortgages were endorsed -22,030 purchase money mortgages, 22,623 refinances and 4,195 HECM’s.
· The average FICO score for all cases was 648, but quite a difference between purchase cases (657) and refinanced cases (639).
· Four out of five purchases were for first time home buyers, most of which were non-minority households (65%).
· For the refinanced transactions, 31.2 percent were cash outs.
· Of the 22,623 refinance endorsements, 6,682 were prior FHA’s, 15,683 were conventional to FHA conversions and 258 delinquent conversion cases.
These are amazing numbers considering FHA was barely a blip on the radar two years ago. It is obvious that understanding what FHA can do and how to structure an FHA offer is critical to making every sale opportunity count. I have a feeling that as the rest of this year goes by these numbers will only continue to climb and next year will easily double this year.