Here's the lowdown: those easy-to-qualify stated income/100% financing loans that lenders were churning out like there was no tomorrow just a couple years back are few and far between, and if you do find them, they come with pretty stringent guidelines- and rightly so. With foreclosures at an all-time high, investors know that they run the risk of losing their shirts if they give a borrower with not-so-great credit a half a million dollars without seeing paystubs or bank statements.
Before you start crying into your pillow though, there is some good news for you. If you're a renter who thinks your dreams of homeownership will remain nothing more than that due to the stricter lender guidelines, or you're a homeowner who was hoping to get a refinance but couldn't get approved due to lack of equity or the fact that stated income loans are hard to come by, there just may be hope for you yet in the form of FHA loans.
Here are just a few reasons why an FHA loan may be what you're looking for:
* No minimum credit score. You can have a FICO score in the 500's as long as your debt-to-income ratios are within FHA guidelines. (You do have to submit proof that you do make what you say you do though!)
* FHA allows non-occupant co-signers. If you can't qualify on your own income, you can ask your favorite aunt to be your co-borrower, as long as she can document her income.
* FHA will allow up to 97% of the total purchase price. Before you start lamenting the fact that it does you no good because you don't have the remaining 3% for the down payment, read on. Mind you, the norm was that homebuyers used to have to put down at least 20% so the fact that you can still buy a home without putting any money down is still a steal, no matter how you look at it.
* Seller can contribute up to 6% of the total loan amount towards closing costs. Great news for those who want to buy but can't cough up the closing costs associated with buying a home.
* Down Payment Assistance programs allowed. So, you're approved for the maximum 97% In addition to your seller being able to contribute as much as 6% toward your closing costs, FHA also allows you to use Down Payment Assistance programs as well.
* Gift funds allowed. If you don't want to apply for a Down Payment Assistance program, FHA also allows 3% gift funds from a family member or employer.
* No reserves required on 1-units. If you are buying or refinancing a single-family home, but you don't have enough reserves in your bank account, 401k, stocks or bonds to show after the transaction closes, FHA won't hold that against you. On 3-4 unit properties, you do have to show at least 3 months reserves though.
* Prior bankruptcies are OK. If you have a Chapter 7 that was discharged two years ago, or even if you're in a Chapter 13 but you have at least 12 months of demonstrated payments, you're good.
The FHA loan program is essentially a full documentation loan, and while there may be people who bemoan the fact that it gives them a much more limited price range than the conventional loans of the past few years, it also keeps the specter of default and foreclosure away by taking pains to ensure that borrowers can afford the homes that they buy.
