FHA mortgage insurance requires a Florida borrower to demonstrate a good repayment history of all debts.  This history serves as the most useful guide in determining a Florida mortgage applicant’s willingness to repay credit obligations and serves as a model in predicting his/her future actions.

When analyzing a Florida mortgage applicant’s credit report, it is important to focus upon the general pattern of credit behavior rather than isolated unexpected temporary occurrences of late payments.  Often times, Florida mortgage applicants will experience a period of financial difficulty in the past and does not necessarily translate into an unacceptable risk.  Reasonable past explanations of the derogatory credit and evidence of offsetting factors (such as a new job or promotion with greater stability and pay, for example) will be necessary.  All recent derogatory credit within the past 2 years must be explained, in writing, by the borrower.

The following is a brief synopsis of the credit underwriting guidelines for FHA mortgage loans:

Lack of credit history: If a Florida mortgage applicant does not have a minimum of 3 trade lines on their credit report, alternative forms of credit may be used.  This would include items such as 12 months canceled rent checks, or verification of rent from a management company, letter from an electric, cell phone, cable, auto insurance payment history or  utility bills, etc, providing proof of a 12 month on time payment history. Included credit obligations: Any installment loans such as student loans, car loans, or other debts with less than 10 months remaining does not need to be included when qualifying for a Florida FHA mortgage loan.  However, consideration is given to a large debt of over $100 a month, regardless of the number of months remaining.  Furthermore, if payments on auto leases with less than 10 months must be included in the qualifying ratios.  The minimum payment on all revolving accounts (i.e. credit cards) is also factored in.  If the borrower has an open revolving account without a balance, $10 per open account should be included when qualifying. Any loan where the Florida mortgage applicant  has co-signed for another party is included with their debts unless the borrower can prove that the other party has made the payments on their own for a minimum of 12 months. Chapter 7 Bankruptcy: Florida FHA mortgage lenders require a minimum of 2 years since the discharge of the Florida bankruptcy.  An explanation of the Florida bankruptcy will be required.  Furthermore, the Florida mortgage applicant should have re-established credit proceeding the bankruptcy with no late payments. Chapter 13 Bankruptcy: Florida FHA mortgage lenders will consider a borrower still paying on a Chapter 13 bankruptcy if the payments to the court have been made for a minimum of 1 year in a satisfactory manner (as verified with the courts) and with the approval of the court trustee. Federal Debts: A mortgage applicant is not eligible for a FHA loan if he/she is delinquent or in default on any federal debt (such as a HUD or VA mortgage, student loans, SBA loans or a tax lien against his/her property).  Florida mortgage applicants  can become eligible by bringing any delinquent accounts current, making satisfactory repayment arrangements with the creditor (generally a 3 month minimum history will be required), or paying the account in full. Judgments: Judgments must be paid or have 12 months of arranged payment history Collection Accounts: Collections do not need to be paid (LOX) needed Foreclosure: A Florida mortgage applicant who has had a property foreclosed upon, or who has given a deed-in-lieu of foreclosure within the previous 3 years, is generally not eligible for a Florida FHA mortgage loan.  However, if it was the result of extenuating circumstances beyond the borrower’s control (such as the death of a spouse, loss of employment, or serious long-term illness, etc.) and the borrower has since re-established good credit, an exception may be granted.  However, extenuating circumstances do not include the inability to sell a house when transferring from one area to another. Non-purchasing Spouse: If a married mortgage applicant is purchasing a property by himself/herself, the credit obligations of the spouse must be included with the application and will be factored in with the borrower’s credit obligations and used to determine the financial capacity of the borrower.  Furthermore, the non-purchasing spouse may be required to sign a security instrument or documentation relinquishing all rights to the property.

FHA Mortgage loan COMPENSATING FACTORS

Compensating factors are factors that give your FHA home loan request that extra push needed for approval.

For the  home buyer the FHA program can simplify the purchase of a home, making financing easier and less expensive than a conventional mortgage loan product. Some highlights of the FHA loan program include:

Minimal Down Payment and Closing costs.

Down payment less than 3% of Sales Price Gifts are allowed Seller can credit up to 6% of sales price towards closing and prepaid costs. 100% Financing available No reserves required. FHA regulated closing costs.

Easier Credit Qualifying Guidelines such as:

  No minimum FICO score or credit score requirements. FHA will allow a home purchase 1 year after a Bankruptcy. FHA will allow a home purchase2 years after a Foreclosure.

http://www.fhamortgagefhaloan.com/

Compensating Factors

On FHA home loans where the ratio exceeds FHA guidelines (other that Approved/Eligible findings), the underwriter must list on the MCAW the compensating factors that lead to the approval of the FHA home loan. Any compensating factor used to justify mortgage approval must be supported by documentation. The following are a list of eligible factors per FHA home loan approvals:

 A. The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past 12-24 months.

 B. The borrower makes a large down payment (ten percent or more toward the purchase of the property.

 C. The borrower has demonstrated an ability to accumulate savings and a  conservative attitude toward the use of credit.

 D. Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses. 

E. The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits.

 F. There is only a minimal increase in the borrower(s)housing expense.

 G. The borrower has substantial documented cash reserves (at least three months= worth or payments) after closing. In determining if an asset can be included as cash reserves or cash to close, the lender must judge whether or not the asset is liquid or readily convertible to cash and can be done so absent retirement or job termination.

  H. The borrower has substantial nontaxable income (if no adjustment was made previously in the ratio computations).

 I. The borrower has a potential for increased earnings, as indicated by job training or education in the borrower=s profession.

 J. The home is being purchased as a result of relocation of the primary wage earner, and the secondary wage-earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area. The underwriter must document the availability of such possible employment.

The name ‘reverse mortgage’ almost speaks for itself in the sense these types of mortgages reverse a home’s equity accumulation through payment(s) to the homeowner. To understand the pros and cons of reverse mortgages, taking each element of the mortgage one step at a time can help build a familiarity with its features. A good starting point for becoming informed about these loan products is eligibility which includes applicants aged 62 years old and above. Another qualifying criteria is the value of a home’s equity, and any pre-existing debt on the property.

The pros and cons of reverse mortgages differ from person to person, however since reverse mortgages allow the homeowner to receive payment and remain in the home until they leave, three financially important benefits exist. These advantages are 1) it can eliminate the need for monthly rent or mortgage payments, 2) allows for additional cash flow during retirement, and 3) is not considered taxable income. The net gain is essentially an increased tax free ‘income’ with the cost of that income covered by the terms of the loan. Additionally, for borrowers who are near taxable state estate values, a reverse mortgage may reduce net worth enough to bypass the tax.

Costs of reverse mortgages aren’t necessarily prohibitive although they are often cited as a disadvantage that outweighs the pros of a reverse mortgage. The reality is tenured reverse mortgages can never cost more than the value of the home, and tenured payments are perpetual at least in the case of Department of Housing and Urban Development (HUD) Home Equity Conversion Mortgages (HECM). These are very important loan features because they protect the homeowner and any heirs from unmanageable debt burden and longer than accounted for lifespan.

Two disadvantages homeowners ought to be aware of when weighing the pros and cons of reverse mortgages are 1) the relatively high upfront and backend cost, and 2) the cost in proportion to the size of the loan. Upfront costs for a reverse mortgage can be between 3-4% of a home’s determined value for HUD loans. This cost does not include monthly insurance premiums and assessed interest on the loan as it grows. As the reverse mortgage increases in size, the origination fees and mortgage premium decrease as a percentage of the total income received from the loan. Heirs of reverse mortgage holders be they a spouse or other beneficiaries become responsible for the loan in the event of death. Naturally, equity values and interest rates at the time of the reverse mortgage are another factor to consider.

Reverse mortgages have different payment structures called tenure, term and line of credit. In the case of line of credit, a Home Equity Line of Credit (HELOC) costs less upfront particularly if the interest rate is similar to a reverse mortgage line of credit. The pros and cons of term and tenure reverse mortgages rest in 1) the formula used by the lender, 2) the age and life expectancy of the borrower, 3) the market value of the home at the time of mortgage and 4) the specific terms of the loan.

In summary, reverse mortgages help homeowners convert home equity into cash. Payment on reverse mortgages is not due to the lender until after leaving or selling the home, and the loans are available in both fixed and variable interest rates. The primary feature of these types of mortgages is their distribution of supplementary income during retirement. The built in safeguards of reverse mortgages can also protect homeowners from foreclosure, an advantage that allows the homeowner to remain in the home indefinitely.

Some people see Reverse Mortgage as a great financial solution in senior age, but some others see it as one method for financial company to get high profit. Well, there are so many pro and contra in this financial program, but what actually the advantage and disadvantage of Reverse Mortgage for seniors so this subject becomes so controversial.

The main advantage of Reverse Mortgage is payment for seniors; it can be a monthly payment or a lump sum. With the payment seniors do not have to think about income to cover their life. Another advantage of Reverse Mortgage is that seniors can still have a place to stay even they receive payment for their home, and some of the lenders will still pay the payment as long as the senior still alive although the loan balance get higher than home value.

Reverse Mortgage Pros and Cons are triggered by disadvantage seniors might get. The first disadvantage is related with closing cost, it can be so high. The seniors are even have to pay double amount of money that the regular mortgage. Another disadvantage is, Reverse Mortgage can give influence to seniors’ Medicaid. However, since each senior has his/ her own condition, one senior can suit reverse mortgage very well, but some other might not. Therefore, complete Reverse Mortgage Information is needed.