The Federal Housing Authority, operating under HUD, offers affordable mortgages for tens of thousands of buyers who may not qualify for other types of programs. They are popular with both first-time and repeat buyers.
The 3.5% down payment is an attractive feature but there are other advantages:
- More tolerant for credit challenges than conventional mortgages.
- Lower down payments than most conventional loans.
- Broader qualifying ratios – total house payment with MIP can be up to 31% of borrower’s monthly gross income and total house payment with all recurring debt can be up to 43%. There is a stretch provision taking it to 33/45 for qualifying energy efficient homes.
- Seller can contribute up to 6% of purchase price; this money must be specified in the contract and can be used to pay all or part of the buyer’s closing costs, pre-paid items and/or buy down of the interest rate.
- Self-employed may qualify with adequate documentation – two year’s tax returns and a current profit and loss statement would be required in addition to the normal qualifying and underwriting requirements.
- Liberal use of gift monies – borrowers can receive a gift from family members, buyer’s employer, close friend, labor union or charity. A gift letter will be required specifying that the gift does not have to be repaid.
- Special 203(k) program for buying a home that needs capital improvements – requires a firm contractor’s bid attached to the contract calling for the work to be done. The home is appraised subject to the work being done. If approved, the home can close, the money for the improvements escrowed and paid when completed.
- Loans are assumable at the existing interest rate with buyer qualification. Assumptions are easier than qualifying for a new mortgage and closing costs are lower.
- An assumable mortgage with a lower than current rates for new mortgages could add value to the property.
Finding the best mortgage for an individual is not always an easy process. Buyers need good information from trusted professionals. Call (707) 467-3693 for a recommendation of a trusted lender who can help you.