FHA Loan Requirements| El Paso Homes 

FAQs about buying a home


Home Buying FAQs

Many buyers today do not realize that since the 2007 recession, the entire buying process including financing a home has been revamped. The process remains the same but now laws have been enacted to protect consumers from unethical lending pactices. The following are frequently asked questions by buyers today:


1. Is my credit score important?

Your FICO score is something you will need to guard carefully. The general consensus is that you need at least a score of 620.  Although,  I am finding that 620 is not quite good enough with some lenders in 2011. In my opinion, depending on the type of loan you get and the lender you work with, you may need a score of at least 640.

2.  Do I need to get pre-approved before house-hunting?

You want to be pre-approved for a mortgage loan before setting out to look at homes. You may believe your income can support a $200,000 mortgage when the bank will only approve you for say $150,000. This will not only be disappointing but discouraging as you will discover there is a huge difference in the homes offered at these levels. If you are planning to buy a home in 2011, save yourself time and emotional stress by getting pre-approved by a local lender . It is crucial to speak to a local lender  with El Paso, Texas experience.

3.  Where should I find my mortgage loan?

This is an excellent question that many home buyers never even consider. Choose a local mortgage broker that is familiar with the El Paso market . Why? Because national banks will treat your loan similar to the national market. You may be in a city that was not affected as dramatically as the rest of the nation. In fact, El Paso, Texas is a prime example. While the national market has seen a huge decline in home prices, the overall El Paso's market has seen a much smaller decline. A local lender will recognize this fact and the loan process will go much smoother.

4.  What type of loan should I get?

Here again we need to enlist the help of an experienced local mortgage broker. A mortgage broker might tell you it depends on the amount of down payment you will invest and what your overall credit picture is. In my experience, if you are planning to remain in the home for many years than you definitely want a fixed rate mortgage. There are a variety of loans such as FHA, VA, Conventional, and ARMs. Unless you have a large down payment to put down you will probably want an FHA loan. Most home buyers find an FHA most attractive due to the minimum requirements. FHA loans are insured by the federal government which makes it easier for banks to lend and approve buyers that may not have otherwise qualified. This is because banks are insured against losses if the borrower defaults on his/her mortgage. Read more

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FHA 2010 Changes

With over 40% of all mortgages guaranteed by Federal Housing Administration, and in light of the housing trouble FHA commissioner David Stevens announced a set of policy changes to managing risk and strengthen it’s capital reserves.  These changes include the following:

1.       Increase MIP to 2.25%. Mortgage Insurance is paid by borrowers when the down payment is lower than 20%. It protects the lenders in the event of borrower default and makes lending possible for some buyers. This premium can be rolled into the loan.

2.       Update the combination of FICO scores and down payments for New borrowers. The minimum score required will be 580 to qualify for FHA’s 3.5% down payment program. If FICO is less than 580 then 10% will be required for down payment.

3.       Reduce Seller’s contribution from 6% to 3%. This change is expected to take effect by early summer 2010.

These changes are expected to slow the economy down as well as the housing market. Now is the time to lock in your home purchase before these changes take effect. There are never been a better time to buy. You currently have low interest rates, tax incentive of $6500-$8000, and Seller’s are motivated to sell and are presently allowed to contribute up to 6% toward closing cost. Although time is running out. You must have an executed contract on a home by April 30th and close by June 30th. The buying process is long and arduous but a competent and experienced Buyer’s agent will help you successfully navigate the most expensive and complex transaction you’ll ever make. If you are in the El Paso, Horizon city, Santa Teresa area call (915)873-8646 or visit Russell-Realtor.com.

FHA Qualifying

What type of ratios do you need to get an FHA loan. The loan underwriter will examine what is called your front ratio and your back-end ratio to qualify your loan.

To determine your front ratio you take your total housing payment and divide by your total monthly gross (before taxes) income. Housing payment is defined as monthly mortgage payment + monthly mortgage insurance + property taxes divided by 12 + homeowners insurance divided by 12 + monthly condo HOA (if applicable).

For example if your total housing payment is $1,000 per month and your gross monthly income is $3,000 then divide $1,000 by $3,000=33%. This would be your housing ratio is.

To determine your back-end ratio you take your total housing payment + all your monthly debt (Only count items found on credit report. Payment that don't appear on your credit report like utilities, car insurance, cell phone payment, etc… are excluded in the calculations.) divided by your monthly gross income. 

For example if you have a housing payment of $1,000 + 1 car payment of $100 + $50 Credit card payment + a $50 monthly payment to the local furniture store, your total debt for the purposes of the back-end ratio would be $1,200. Then take $1,200 and divide it by $3,000 gross income and your back-end ratio is 40%. 

The underwriter is looking for scores that start at 31% maximum housing ratio and a 43% back ratio + other guidelines like job history and your credit score. The credit score the underwriter is looking for should be at least 620 (may change next quarter). If your ratios are not what you expected you should contact a reputable mortgage broker. There may be other factors to consider and an experienced broker may be able to get you qualified.

A loan may require a manual underwrite if your credit score is lower than 580.

 

Closing Cost Assistance

FHA Tips

Here are some things you can do to improve you debt to income ratios to qualify for an FHA loan. Your objective is to reduce your debt- to- income.
Pay down/pay off debt like credit cards that show up on your credit report.

Teachers should try to get your student loan deferred. ( these payments do not have to be included in your debt if deferred for 12 months).

Pay off an auto loan (this is one of the biggest killers on a credit report)

Consider a home in a lower price point
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FHA Loan Pros
IMPORTANT NOTICE  Russell-Realtor is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
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