FHA loans are not just any old loan program. FHA mortgages are flexible which in my opinion makes them easier, and they have some nuances that make them a special breed of mortgage program. A good loan officer who knows FHA loan guidelines can help a lot of first time home buyers by getting them into an excellent loan program where they may have been turned down before. Read more about why FHA loans are great for first time home buyers.
Differences Between FHA Loans and Conventional Loans
There are some slight differences between FHA loans versus conventional Fannie Mae and Freddie Mac loans. If you are a loan officer,knowing these differences listed below and the many more that there are to know will help you sell more loans, make better relationships, and service more customers. If you are a consumer and you know these differences you can help yourself get into a loan program that will allow you to become a homeowner.
Credit Scores mean much less with FHA Financing than Conventional Financing
Underwriting can be either automated or manual.
100% of the down payment and closing cost requirements can be from a gift, unlike Conventional Financing where your buyer needs 5% of their own money
Buyers do not actually need a credit score – they can qualify with evidence of alternative credit account payment history such as cell phone bill, utility bills, cancelled check rent payment history
Buyers can qualify with collections – medical collections are ignored
In most cases, FHA loans are assumable – buyer must qualify – but there is no need for a new mortgage. This is great for a seller in a declining market.
Need to be two years from the discharge of a Chapter 7 bankruptcy and can be in Chapter 13 as long as the buyer is making payments as agreed and gets the approval of the bankruptcy trustee
There are no income restrictions like there are for some Conventional low down payment programs like My Community Mortgage and Home Possible.
Generally, as long as the buyer qualifies there are no bank reserves required
Allows Down Payment Assistance Programs like AmeriDream, Nehemiah whereas Conventional Financing does not.
Buyers can use a non occupant co-signer like a parent or close relative to help qualify the primary borrower