Buying a house in Kentucky? Think FHA

By
Mortgage and Lending with Allied First Bank

Buying a house in Kentucky or wanting to buy a house in Kentucky soon?

I am following up to my post yesterday about the credit score adjustments on Conventional loans where I mentioned that for scores under 620,  FHA is most likely the best means to achieve affordable financing.

Even many real estate agents I have spoken with lately still have misconceptions about FHA financing and worry it's going to take too long or they have to jump through too many "hoops". The appraisal/inspection processs is truly simplified in the last couple years.  Working with someone who originates a lot of FHA loans really helps,  We know the common pitfalls and can make suggestions while you are shopping for a home.   Its almost certain that more banks and lenders who havent historically handled FHA loans will & currently are adding this product. 

So let's get back to the 620 score for a moment...Scores under 620 face the highest PMI (Private Mortgage Insurance) costs on Conventional loans and now, the highest cost or fee from Fannie mae or Freddie Mac built into the loan terms as well.

FHA loans presently have a level PMI cost: 1.5% of the base loan amount which is financed and 0.5% monthly.  So how would you calculate this?  Let's use $100,000, nice round number to illustrate this:  $100,000 x 0.5% = $500, then divide that by 12 and you have a $41.67 monthly PMI payment.  Conversely a conventional loan rated as A- can have a PMI rate 3 or 4+ times that amount.  On $100,000 you could end up being charged well over $100 more per month.  I recently witnessed a refinance applicant here with a 7.50% interest rate but a BANK-issued PMI of 4.18%----this made their APR on their existing loan 11.66%!!

FHA Loans are not score-driven as a rule....Yes, some lenders do set their own pricing tiers for certain scores but as a rule, credit score alone does not dictate pricing.  There is an FHA Total Scorecard system used for automated underwriting but manual underwriting is available if not approved this way (yes, a human being actually looks at everything and is expected to use a common sense approach)  There are some guidelines a Direct Endorsement Underwriter cannot bend on but there are many areas within FHA Credit Policy open for interpretation and left to the discretion of the underwriter. "DE" Underwriters are accountable for their actions and defaults are tracked very closely.  Defaults pointing to underwriter oversight are closely monitored and defaults with common loan characteristics are tracked accordingly for potential guideline updates and revisions

I will talk more soon on the potential of FHA for refinance savings

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