FHA I am SOOOO lost!?

Question

I would really appreciate some insight here. My Fiance and I contacted Wells Fargo to obtain a mortgage for 70,000 for a home we are looking to purchase. The mortgage guy I talked to said we should try a FHA loan. His credit score is 562, we would be putting $10,000 down and have $5,000 for closing cost ect. So what is a FHA loan and will we get one with his score and the money we have for a down payment???? Any help would be great!!!! Thanks...........Oh by the way he has no judgments, no forecloser, and all student loans were paid off 5 years ago.

No, I'm not co-signing was told it wasn't needed.....obviously if I was co-signing I would have stated that along with my score

Answer 1

An FHA loan is one that's insured by the federal government. They're insuring the bank against loss, not you. Basically that lets the bank approve someone with a 562 credit score where they normally wouldn't. You have plenty of money for the down payment for this program and sounds like your credit would be perfect as he has no recent issues or collections.
Keep in mind this FHA insurance costs money, which you pay both monthly and in your closing costs. Your closing costs will be higher than a conforming mortgage. $5,000 still seems a little high, even with the insurance and escrow accounts though, review your Good Faith Estimate to make sure all their other fees are reasonable.
Good luck and congratulations on the new home

Answer 2

The reason that the mortgage guy suggested FHA is because the FHA program is less credit score sensitive. The rule of thumb issues to get approved is having no lates in the previous 12 months and your total collections being below $1000 with no one item above $100. Be aware that you will have to pay PMI for a minimum of 5 years regardless of your down payment, but if this is your only avenue to get approval you can always refinance after a year or so because your credit score will shoot up once the credit agencies identify you as a home owner.

Answer 3

Okay, here's the thing: you don't really care what FHA means, you care how it impacts you. What you want to compare is how much you have to put down, and what it costs you per month. When you compare what you put down to other loans, include all closing costs, everything you take out of pocket.

Now, here's a BIG term of a mortgage loan you want to be aware of: "prepayment penalty".

Now, you need to understand WHY his credit score is 562. That's not a great score. If you can figure out why it is that low, there's a really good chance you can improve it in a year, and get MUCH better loan terms, general market rates being equal. You want to be thinking refinance in a year to two years. You do NOT want to be stuck with a huge penalty for paying off the loan early in that case. I would suggest you not agree to a prepayment penalty for more than one year.

Now, IF you decide this planned refinance in 1 to 2 years is a good strategy for you, you might well want to accept a rate that will adjust in three years or more. Accepting it as being adjustable will often get you a lower initial rate than a 30 year fixed, and if the plan is to get out of the loan in 2 years, a 3 to 5 year adjustable isn't that bad.

However, if you do go that way, make a plan on how to fix the credit score, and stick to it.

If you can take just one percent interest off by fixing the credit score, on a 70,000 loan, you can save almost 60 per month in interest.

Answer 4

FHA loans are backed by the federal housing authority, that really doesn't mean anything to you, but more to the lender. FHA loans usually offer a good finance rate, and decent terms. Usually you have to have pretty good credit, and the house also has to qualify by not having any major problems, if you and the house qualify for FHA financing- I would recommend it, they can probley offer the best rates , if you put less then 20% downpayment on any loan- no matter who lends you the money- you will have to pay pmi, its a extra fee paid to the lender and a total waste of money., you will be charged the pmi untill the amount you owe on the loan is less than 80% of what the original loan amount was. Just a idea but if you are buying a 70k house- well 20% would be a down payment of 14k, you may consider putting that full 20% down and requesting that the seller pay the closing costs or most of them, the most you can put down will will make it a shorter period of time you will have to pay pmi.

Answer 5

First of all if you have 5k in closing costs on a loan this size, you are being taken for a ride.

FHA is a gov program that allows you up to 97% financing on a new mortgage, there are alot of things to know, first it isn't score driven, so his score isn't a huge factor. Collections, foreclosures, bankruptcies, etc. are a problem. If he has none of these, why is his score so low? Any ideas? High credit card balances, little to no tradelines? I might take a closer look at that.

There are a few hoops to go thru, find yourself a good loan officer to work with, find a counselor if possible and look for someone who is certified if you have any in your area. You want someone who knows FHA and has some experience, ask for references, don't be bashful. Getting a mortgage in this market means you need to be informed.

as far as the MI thing, 20% down is the key. you have 15k, ask if the seller is interested in doing sellers concessions, you roll the closing costs into your mortgage that way, but avoid MI which forces your monthly payment up. Although at this loan amount and MI ranges from 12-30% usually, it isn't going to be that much on a loan this size.

IF you want to ask some specific questions, I am in Michigan, but am willing to be a resource and possible refer you to someone in your area that can help.
just email me at [e-mail]
Nichole

Answer 6

Are you cosigning? What's YOUR credit score? Or do you just like posting his personal financial info online but not your own?

FHA loans are essentially designed for getting houses for poor people. So, yes, you will probably qualify. Especially since FHA requires very little down. So, having $10K down should easily facilitate the process.

You may be better off waiting a year. Pay all your bills on time and that should get your credit score up enough to have more options.
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Answer 7

You should probably be able to get a conventional mortgage but you'll have to pay mortgage insurance until you can get 20% of the principle paid off.

More info about FHA and other mortgage options is available at the link below

Answer 8

As the other answers have clearly said this is a very stupid question, stop being so critical. Michael can't move on, Eko was asking for too much money, they did want him to go, Walt clearly made other close relationships off the island so naturally he would have moved on with them not a group of almost strangers considering he only knew them for like 100 days I think on the show somewhere around there. Calm down.

Answer 9

He recommended FHA due to the low scores. FHA is not score based.
It will probably be easier that way.

Good Luck

OBA™

Answer 10

talk to the mortgage guy - he's the one who will know about all the different types of mortgage programs