Boise Mortgages

This article is part one in a two-part brief on Idaho FHA loans. Here we look at quick-facts for Idaho FHA loans, such as allowed property types, loan limits & terms, borrower eligibility, and current FHA interest rates. In part two, we’ll talk about the “Four C’s” of credit, specific to FHA borrowing.

The Federal Housing Administration, generally known as FHA, provides mortgage insurance on loans made by FHA-approved lenders throughout the United States. FHA is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934.

An FHA home loan is a federal assistance mortgage loan, insured by the FHA. To promote home ownership, these loans require a small down payment and offer the most choices for someone wanting an Idaho refinance loan, especially with cash out.

If you’re considering an FHA loan, you should know the “Four C’s” of credit, specific to FHA lending:

Four C’s of Credit:

1. Credit History

Notables:

FHA does not require the borrower to have perfect credit.
Credit report should have no late payments for the last 12 months (exception would be on the new FHA Secure program for ARM loans that have recently adjusted).
FHA is not FICO-driven, meaning borrowers do not need to have credit scores to qualify.
Collections generally do not have to be paid; however, it is the underwriter’s discretion to require payment in full based upon amount of, age of, and number of collections.
Judgments must be paid off prior to or at time of closing.

Bankruptcy Guidelines:
Chapter 13

Borrower required to be in re-payment program for 12 months with no late payments (proof required).
Borrower must receive permission from the court to enter into a mortgage transaction.
Cash-out refi to pay off the bankruptcy.
Credit Counseling is viewed the same as Chapter 13 (acceptable 12 month payment history and written permission from counseling agency required).

Chapter 7

Must be 2 years from the discharge date, with no late payments. Full bankruptcy and discharge papers required.

Foreclosure

Must be 3 years from date paid.

Debt-to-Income (DTI) Calculations

Installment loans with less than 10 months remaining are not required to be calculated in DTI unless they are significant enough to affect mortgage payment ability.
Student loans deferred for 12 months or more are not required to be calculated in DTI.

Social Security Numbers

FHA requires lenders to verify Social Security Numbers.
Only acceptable verification document is Social Security Card.
FHA validates all Social Security numbers at time FHA case number assigned.

2. Credit Report

Last 12 months must be very accurate.
Most updated copy is retrieved from the major credit bureaus.
If debt needs to be paid off, get it paid and obtain new credit report.
Inaccuracies or late payments must be explained in writing.

3. Capacity to Repay

Employment:

Borrower must have 2-year history of employment.
College education is acceptable as part of 2-year history as long as entering workforce in field of study.
Employment gaps greater than 60 days need to be addressed.
If re-entering work force from extended absence, six month current history is required.
Frequent job changes, within same line of work, but continues to advance in income/benefits, considered favorable.
Bonus, Overtime, Commission and Part-time/Secondary income requires a 2-year history. Less than 2 years, but more than 1 year may be acceptable in certain cases.
Self-employed borrowers require 2-year history. If borrower working for family, tax returns and proof of borrowers ownership in business required. 25% or more is considered self-employed.
FHA is a full/alternative documentation program, meaning stated income is not an option, and bank statements documenting income are not acceptable.

Income:

Alimony/child support must have 3 years continuance and 6 months history of consecutive payments.
Social Security and/or Retirement Income must have 3 years continuance.

Ratios:

Debt to Income ratio = 31/43.
For new construction or energy efficient homes = 33/45.
Higher ratios may be acceptable with compensating factors.

Compensating factors:

Current housing expense equal to or greater than proposed housing.
Large down payment/low LTV.
Conservative attitude towards the use of credit.
Previous credit history shows ability to devote a greater portion to housing.
Borrower receives compensation or income not reflected in effective income.
Minimal increase in housing expense.
Cash reserves after closing.
Potential increase in earnings.

4. Cash to Close

The down payment can be from the following sources:

Own funds from checking/savings account (must be seasoned for 60 days and documented via bank statements or verification-of-deposit).
Proceeds from sale of existing home.
401K (use 60%).
Gift Funds; requires gift letter, copy of check, copy of deposit slip, and verification donor has means to donate.
Secured loans.

Down payment-assistance program via a FHHL-approved down payment assistance provider.

Make sure you have a complete understanding of all closing costs, including Reserves, Broker Fee, Tax Service Fee, and any other fees, before you get to closing.

Collateral

A property appraisal is required: