1. LenderSelect Mortgage Group
FHA Mortgages

2. What is FHA?
The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders throughout the U.S. and its territories.
FHA insures mortgages on single family and multifamily homes.
It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.
FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue.

3. How is FHA funded?
FHA is the only government agency that operates entirely from it’s self-generated income, and costs the taxpayers nothing.
Proceeds from homeowner-paid MI is used to operate the program entirely.

4. What is Mortgage Insurance?
FHA mortgage insurance (MI) provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans.
Lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default.
Loans must meet certain requirements established by FHA to qualify for insurance.

5. Features of FHA Purchase Loans
Primary Residences only
Competitive MI premiums that are not based on credit score
Lower down payment requirement
Down payment assistance allowed
Gift funds allowed
Higher seller contributions allowed
Non-occupying co-borrowers allowed

6. Features of FHA Purchase Loans
Less restrictive qualifying criteria
Non-traditional credit allowed
For example: rent, utilities, and cellular phones
12 month payment history
Account must be in borrower’s name

7. Mortgage Insurance Premiums
Up Front & Monthly
Mortgage Insurance Premiums
All FHA loans have a 1.75% Up Front Mortgage Insurance Premium (UFMIP), regardless of the term or Loan-to-Value (LTV). This can be financed into the loan.
Monthly MIP is based on the term and Loan-to-Value (LTV).
Term
LTV
Premium
Loans > 15 years
≤ 95%
0.80%
> 95%
0.85%
Loans ≤ 15 years
≤ 90%
0.45%
> 90%
0.70%

8. Statutory Investment (i.e. Down Payment)
Minimum of 3.5% on purchase transactions.
May be in the form of a gift from a close friend (i.e. roommate or fiancé), family member, etc. or a non-profit organization.

9. Seller Contributions FHA allows up to 6% of the sales price!
Contributions NOT allowed by FHA:
More than 30 days of interest
Overfunding of escrow account
Cash
Furniture
Decorating allowances (including carpet, flooring, etc.)
Moving costs
Appliances

10. Property Flipping
All transactions must be arm’s length with no identity of interest between the buyer and seller or other parties participating in the transaction.
The seller must hold title to the property. No previous flips within the past 12 months.
Suggestion: check online city/county tax records for ownership history.

11. Property Flipping 0-90 Days Not permitted 91-180 Days
One (1) appraisal is required if the purchase price is less than 100% of the previous sale amount.
Two (2) appraisals are required if the purchase price is greater than 100% of the previous sale amount.
Days
Evidence for reasons of increase are required if the purchase price is greater than 100% of the previous sale amount (i.e. valid documentation of repairs, renovations, upgrades, etc.).

12. Credit Criteria
Non-traditional credit allowed (additional guidelines may apply).
Judgments and real estate tax liens must be satisfied.
Collections totaling more than $2,000 must be resolved.
Medical collections not considered debt (can be disregarded).
Federal tax liens may remain unpaid if at least 3 timely payments have been made (based on a valid repayment agreement).

13. Credit Criteria Credit Scores between 580 - 619 are allowed!
Additional guidelines apply to ensure the borrower’s ability to repay the loan:
Residual Income Test
Liquid Reserves - 2 months PITI
No gift funds allowed

14. When Can You Get a Mortgage Again?
A damaging credit event like a bankruptcy, foreclosure, or short sale doesn’t mean that homeownership is impossible.
Wait periods may be shorter if extenuating circumstances caused the unfavorable credit event. Extenuating circumstances must have been temporary, out of the borrower’s control, and documentable.
For example:
Loss of job
Medical bills
Death of a wage earner
Divorce or the inability to sell the house after a job relocation do not qualify as an extenuating circumstance.

15. Bankruptcy Chapter 7 2 years from completion/discharge date
1 year from completion/discharge date (only if extenuating circumstances apply)
Chapter 13
1 year payout has elapsed
Satisfactory payment performance
Requires approval from Bankruptcy Court

16. Foreclosure/Deed in Lieu of Foreclosure
3 years from event date.
1 year from event date (only if extenuating circumstances apply).
Event date is usually based on the final sale of the property.

17. Short Sale 3 years from event date.
Wait period is not required if borrower is current on their mortgage and is not taking advantage of declining market conditions.

18. Compensating Factors
FHA takes into consideration compensating factors that may strengthen a borrower’s application:
Demonstration of the ability to pay housing expenses equal to or greater than the proposed monthly mortgage payment (over the past months).
A large down payment (10% or more).
Demonstration of an ability to accumulate savings and a conservative attitude toward the use of credit.
Previous credit history shows the ability to devote a greater portion of income to housing expenses.
Evidence of compensation/income not reflected in qualifying income, but directly affecting the ability to pay the mortgage.

19. Compensating Factors
Only a minimal increase in the borrower’s housing expense.
Substantial documented cash reserves (at least 3 months’ worth) after closing.
Substantial non-taxable income (if no adjustment was made previously in the income calculation).
Potential for increased earnings, as indicated by job training or education in the borrower’s profession.
Borrowers have relocated (100 miles or more) and the co-borrower is not yet employed, but is expected to return to work based on prior work history and availability of work in the area.

20. Less Restrictions. More Possibilities.
Conventional mortgage requirements are more stringent and do not allow for a manual review by an underwriter. Compensating factors cannot be used.
Manual underwriting allows the borrower to “tell their story.” This lets the lender probe deeper to make a more informative decision, as opposed to simply denying the loan.
FHA loan programs are a smart alternative, and sometimes a better option for the buyer!

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