NEW 2023 FHA Loan Requirements — The Ultimate Guide For First Time Buyers

in this video we're going to go through everything that you need to know about an FHA loan to see if you can qualify for it and if it's the right loan for you by the end of this video you're going to know more about FHA Loans than most first-time homebuyers and probably more about FHA Loans than a lot of loan officers so this is going to help you see if this is the right loan for you and if you should pick it and be able to win an offer with an FHA loan so there's also time stamps along the bottom if you want to scroll to different sections that are more applicable to you so first let's go through some highlights this is one of the easiest loans to qualify for out of the four main types of loans you have conventional FHA VA and USDA this is one of the easiest because it allows lower credit scores a higher debt to income ratio which we'll talk through and is more lenient on things like bankruptcy and late payments now a lot of people pitch this as a loan for first-time home buyers mainly just because it has a lower down payment and it's really flexible with who can qualify for it but you don't have to be a first-time homebuyer to qualify for this FHA loan now one of the biggest things about FHA is the credit score that you're allowed to have when you qualify for it so conventional loans require a 620 minimum FICO credit score FHA actually allows you to have a 500 credit score and if you have a 500 credit score you have to put 10 down if you have a 580 and higher then you can do 3.5 percent down now you can also have a 740 and 800 a 620 you can have a much higher credit score and still qualify for an FHA loan this isn't just for if you have lower end credit now a lot of people have questions about hey I can't find a lender who does 500 credit score I will show you more about this in an upcoming slide so this is best for lower to Mid credit score borrowers and the reason most people get this loan is primarily because they can't qualify for something like a conventional loan that has maybe cheaper mortgage insurance and all go through the whole loan comparison thing in an upcoming slide but that's mainly who this is best for um also this is not something that's going to be a long-term loan I'm going to show you the strategy that you need to use that I call the bridge strategy to make sure that you're taking advantage of the FHA loan so that it doesn't take advantage of you so quick pros and cons here at the top Pro super easy to qualify for if you can't qualify for a traditional conventional loan then FHA is usually one of the easiest places to get approved for a mortgage second is it does have a low interest rate has a low down payment 3.5 percent if you have a 580 credit score and above also there's some flexible rehab options where you could buy a home get money to do the work for it and then increase the value that way and there's also some investing options that I'll talk through this is a strategy called house hacking that you can do with an FHA loan now some cons that we need to run through costly mortgage insurance this is one of the biggest downsides of FHA it's easy to get approved has a low down payment but the problem is you pay for that in what's called mortgage insurance and I'll show you that as well also the loan limits are pretty low considering the median home price in the US it's not super high it kind of tracks just a little bit lower than the median home price in the US so if you're looking to get a really big house um it might not be the best strategy with an FHA loan also uh it has stricter appraisal requirements so something like conventional loan will allow you to do something that's a little bit more as is condition or um you know you can do some work on where FHA kind of wants a move-in ready home unless you're using a rehab loan with it also FHA is not super favored by sellers a lot of sellers kind of look at FHA as they think the buyer um can't qualify and they think that the financing is going to fall through and that really is just it's stupid that sellers think that way because if you're approved for a loan you're approved for a loan it doesn't mean that if you're approved for FHA things are going to fall through the cracks that's not how it works but unfortunately that's how sellers can sometimes view it so some big changes that have happened recently that no one is seeming to cover um is number one is the market is changing and FHA is becoming more accepted so these past couple years as home prices have increased a lot we've seen a lot of competition a lot of multiple offers what ends up happening is a seller might get you know or was getting like 20 different offers on their home and a lot of those were for cash or conventional financing which again sellers can view as more favorable I don't think it's fair that they do that and I think it's it's not really logical that they do that but that's the reality of the situation so as the market switches back to more neutral territory and into more of a buyer's market you start to see FHA more accepted whereas it might have been difficult for somebody to get an FHA loan approved now it's becoming a lot more accepted also there are new loan limits so as home prices increase the loan limits for FHA Loans increase as well also with FHA you used to have to get flood insurance through the government that was just the requirement now you can actually get private flood insurance which should lower the cost if you live in a flood zone FHA covid rules have also been relaxed quite a bit uh primarily with when it comes to income FHA was a little bit tough to get approved if you were laid off or you had you were self-employed and your income dropped or you got reduced hours with covid lenders were primarily looking at that lower income because of covid and now they've relaxed those rules a little bit where your income can be averaged since you've been back at work from a covid lapse whether it was reduced income or laid out or whatever that circumstance was also rental history can now be accepted on FHA Loans to help nudge you towards an approval so all these things kind of putting together FHA has evolved quite a bit even over just the past year so first of all what in the world is FHA what does this stand for um this stands for the federal housing Administration so this is uh just a part of a HUD which is the U.S Department of Housing and Urban Development none of this matters a ton but this is with the acronym stands for and this is the government's uh kind of goal was to provide easier financing for people where conventional loans used to require like 20 down they usually required low that's income ratios things have changed quite a bit but this is where FHA evolved into providing more housing options for people who couldn't qualify for conventional loans but this is a type of loan offered by many different lenders okay this is not just offered through one specific lender most lenders offer an FHA loan now if it's important to note that in this video we're talking about the base guidelines set by FHA okay these are set by the government entity that ensures these loans so you have the basic guidelines but each lender gets to add what they call an overlay so for instance we talked about the minimum 500 credit score a lot of lenders add an overlay basically it's a rule stacked on top of a rule so the base rule is 500 is the minimum lenders can if they want to say their own minimum is let's say 640 they're allowed to do that so I'm going to show you how you can get around those overlays in this video as well also FHA does not make loans they don't issue loans what they do is they insure payments to investors so for instance A lender would offer an FHA loan and then the FHA they actually ensure that mortgage so that in the event that let's say you don't pay back that loan uh the FHA can actually come in and help that lender recoup any losses there but because of that the requirements on things like the appraisal can be more strict in the event that there is uh you know a foreclosure they want to make sure that they can sell the home um without losing as much money as possible so really quickly about me I'm a certified mortgage advisor licensed in all 50 states and I work with a team of quite a few helpful mortgage advisors and our goal really is to provide home loans that fit your budget to help clarify some of the confusing parts of the mortgage process in videos like this so you're welcome to email me also what we do is we do free home loan consults at when the house you love.com we'd love to start a conversation and walk you through some of these programs and see how we can help you so one of the main requirements with FHA is the minimum down pay of course you can always put more down than the minimum if you want to but as we talked about in the beginning if you have a FICO score between a 580 Plus so anything at 580 FICO score and higher you can do 3.5 percent down so in an example where let's say we're looking at a 425 000 home 3.5 down would be 14 875 dollars okay now if you have anywhere between a 500 to a 579 you need to put 10 percent so in our example of a 425 000 home that would be forty two thousand five hundred dollars Okay so then we work into down payment assistance FHA is one of the most common loans to have with down payment assistance and the way that it works is down payment assistance is added to an FHA loan so even though that the minimum down payment on an FHA loan is 3.5 down if you have a 580 credit score or higher down payment assistance is a program where you could get additional assistance to reduce the 3.5 down payment and this comes in a bunch of different like flavors if you will um you have different like grants you have second liens you have loans that you have to pay back tons of different options but ultimately these down payment assistance programs often will have a higher interest rate or different kind of strings attached for instance there's a lot of down payment assistance programs where they'll say you have to live in the home for let's say five years and then after five years you have to pay back half of it when you sell it or there's some that reduce the amount that you have to pay back there's some that require a payment on it where it's basically a second loan there's all different types of down payment assistance usually it's one of more financially best options to not go with down payment assistance um but I'll run through an example of down payment assistance program that we work with nationally and again you can just go to win thehouseylov.com set up a consult we can walk you through this one that we work with is is called an empowered down payment assistance and this is a forgivable grant meaning that you walk out of the closing and it's completely forgiven you don't have to pay that money back where a lot of down payment assistance programs do have this kind of you know if you wanted to sell you'd have to pay back a portion or all of the down payment assistance so this would provide two percent to 3.5 percent of the down payment has a 620 minimum credit score um and then you need to either be a first-time homebuyer be under 140 of the area in median income being an underserved census tract or current or retired first responder educator medical personnel civil servant or military um so you can see uh you have the normal FHA loan but then the down payment assistance program on it has its own rules on top of it and there are thousands of down payment assistance programs all that have their own different rules to them and even with a program like this you would expect somewhere around a one percent higher rate so if on an FHA loan you were getting close to let's say a six percent rate you might be looking at closer to a seven percent rate and this again depends on tons of different down payment assistance programs so we have the down payment which is 3.5 for most people unless you have less than a 580 credit score you're looking at 10 percent then you have closing costs and closing costs are going to be associated with all lenders so closing costs are going to be things like your appraisal your title insurance your reporting fees any taxes in your county or state also things like your homeowners insurance and property tax escrow as well so closing costs on FHA Loans are going to be the same as all other loans except for one big exception and that's the FHA upfront mortgage insurance premium in your closing costs I'm going to get to that in a future slide here in just a second so I want to look at a real FHA quote with you now it's important to note this is an educational scenario this is not your quote specifically for you this is just an example quote here okay so we can see on this quote this is what's called a loan estimate this is given to every single buyer when they get under contract for a home and so this allows you to take a look at different loans side by side so we can see this is an FHA loan for 425 000 purchase price we're getting a loan of four fifteen eight Forty Nine and this is because there is an FHA mortgage insurance premium added into the loan amount which again I'll explain here in the future slide so we can see where the interest rate could possibly be with the monthly principal and interest would be really what I want to take a look at though is what closing costs could look like on an FHA loan so in section A up here would be the cost of working with a lender so depending on who you work with the costs are going to change this is a quote from us to one of our clients so we didn't have any origination costs here on this loan section B you're going to run into things like an appraisal a credit report fee and this is the mortgage insurance premium that FHA Loans have so you can see it's 5 724 and so what ends up happening is this actually gets financed into your loan amount it gets added to your loan amount with an FHA loan most people don't pay this out of pocket then you also have your title fees so you get to choose the title company that you work with so these would be an estimate of fees here also your county usually is going to record or charge a cost to record the deed and the mortgage usually is somewhere around 200 bucks then you also have prepaids so when you get a loan you're going to pay 12 months of your homeowner's insurance up front of course you get to choose your homeowner's insurance company uh you also have prepaid interest this is from the time that you close till your first payment is due um then you have an escrow account FHA does require all loans to have an escrow account this is where a little bit of homeowners insurance and property taxes are set in a an account that the lender manages for you and this is because those bills are usually due annually or semi-annually so instead of you having a big bill due once or twice a year the lender collects monthly payments from you sets it into the account and then they will be in charge of paying your taxes and insurance for you then you also have an optional title insurance policy offered to you by the title company as well so that all comes down where you add your closing costs plus your down payment giving you a cash to close and I'll walk through as well how you can reduce your closing costs by asking the seller for a credit so it's important to remember that a lot of people talk about you know loan programs is just the down payment you do still have closing costs um closing costs are probably going to be a good estimate is around two percent of the purchase price um of course we can get the seller to pay some of that as well but if you really want to look at a detailed quote um just ask us for one here just go to win the houseyoulove.com and schedule a call with us so for your down payment closing costs you have to prove that you have the money you can't just show up and say uh yeah I have the money don't worry about it as someone once said to me they were like uh don't worry about it like no that's the job of a mortgage lender they have to know where the money is coming from uh so this is verified most of the time through two months worth of bank statements so your lender is going to ask you for two previous months of your bank statements as well um and then anything that is more than one percent of the purchase price as a deposit uh is what's considered a large deposit okay so again if we're looking at a 425 uh thousand dollar home anything that is above let's say four thousand dollars is going to be flagged as a large deposit and the lender needs to Source any non-payroll deposits that are these over one percent of the purchase price um and they can actually ask for things that are less than that basically what they want to do is see if there's any non-payroll deposits uh where where did that money come from because on FHA Loans you can't use things like you know a personal loan or a credit card you can't use unsecured loans uh to fund your down payment and closing costs you can however use things like uh you know your 401k or you know maybe a home equity line of credit from Real Estate or any sort of secured uh loan you can use there and I know this can be kind of frustrating but really what ended up happening is the Patriot Act is what requires lenders to look at bank statements for evidence of money laundering and evidence of terrorism um and then of course they also want to make sure that the money didn't come from borrowed sources because to A lender in their mind if you need a credit card to pay your down payment then they probably don't want to issue a loan because in their mind they're thinking well if you can't pay the down payment how are you going to pay all the other costs and the monthly payment for the home and so that can be kind of frustrating but ultimately any of those kind of large deposits do need to be sourced if you're selling things let's say you sell car and you get five thousand dollars you can document the receipt of that sale and use that money that's perfectly fine also you can get down payment assistance from family if you're so lucky that your family has money and they're willing to help you out which a lot of people are not in that situation but if that's the case your family is allowed to give you a secured or unsecured loan for the down payment but not the closing costs okay you could also get a gift from a family member if they're even more generous and they're saying we'll give you money and you don't have to pay us back you can get a gift and that can be used for the down payment or and or closing costs um cash on hand is technically allowed in the FHA guidelines but you have to document it so specifically that most Underwriters will not allow cash on hand again even though it's in the guidelines this is an overlay that a lot of lenders have where if they just see a deposit in your account for let's say five thousand dollars and you're like it was Cash I've been saving uh most of the time you're not going to be able to use that for your down payment or closing costs okay crypto must be liquidated and in an account for 60 days FHA has not really caught up to the whole cryptocurrency world and it's still a little bit outdated now the one kind of way around a lot of these rules is by seasoning your funds for over 60 days so basically what it means when money is seasoned it means it's been been sitting in your bank account for over 60 days because again the underwriter is going to look at 60 days worth of bank statements so two full months worth of bank statements if we have money let's say we have cash on hand okay let's say I have five thousand dollars cash and I want to buy a loan in maybe four months it's better for me to go ahead and put that money into my account right now because then four months is going to pass when I apply for my loan an underwriter is going to ask for the past two months an underwriter doesn't ask about a beginning balance on an account they do look at the deposits though so if that money is already in the account before the seasoning happened before they look at those statements then it doesn't get questioned if those deposits happen within those two months it will get questioned okay so that is something that you can use if you have something like cash on hand that you want to be able to use now to lower these costs the down payment the closing costs we can ask for what's called a seller credit this is also called acceler concession and what this means is we can ask for up to six percent of the purchase price uh towards our closing costs so for instance um we'll actually run through an example here in a second so seller credits can make your offer less attractive that's really important to keep in mind here is because what's happening is let's say we're offering you know we're looking to buy a 425 000 home and we're like man we love this home uh but we need money for closing costs and then we ask the seller hey could you pay us money for our closing costs well the seller is going to walk away with less money so often what you'll want to do is work with a realtor who can help you negotiate this where you might actually raise the purchase price and then ask for that money as a credit back effectively what you're doing is you're financing your closing costs in that way right so for instance let's say the home is 425 000 and we want five thousand dollars back in closing costs we can actually offer 430 000 asking for a five thousand dollar credit to the seller there's really no difference they're making the same amount of money net to us we get five thousand dollars we just kind of financed it into the home purchase okay so here's a quick example let's say we're looking at a purchase price of 425 000 the down payment is fourteen thousand eight hundred and seventy five let's estimate closing costs around sixty five hundred dollars and let's say we asked for one percent of a seller credit that's one percent of 425 is four thousand two hundred and fifty dollars so the down payment plus the closing costs minus the seller credit would give us a total do it closing of seventeen thousand one hundred and seventy five dollars now you don't have to be too overwhelmed by the math here if you work with a really solid realtor who understands how this works and also understands more about FHA Loans um they can really help you uh figure out what number do you need down here to do the math for these numbers up here um so if you'd like to be connected and get a referral for a fantastic real estate all throughout the nation you can go to homeandmoney.com Kyle uh fill out a couple questions and they'll connect you with one of the best Realtors uh in your area okay so now credit score requirements with FHA Loans uh every person well most people have three credit scores one with Equifax one with Experian and one with TransUnion okay now FHA does allow loans if you don't have a credit score we'll get to that it's called manual underwriting um but for most people they're going to be running into the situation what lender's going to do on an FHA loan is actually look at your middle credit score so we're going to find our highest and we're going to cut that out we're going to find the lowest and we're going to cut that out 647 is what we would use on this FHA loan so 647 that's above 580 so we can do 3.5 percent down also the 647 is going to control our interest rate the higher our credit score is the lower the interest rate is the lower our credit score is the higher the interest rate is okay so middle score here um with FHA Loans let's look at a couple different brackets so 500 that's the minimum for FHA now we offer loans all the way down to a 500 credit score with FHA a lot of lenders don't they have overlays where they might bring it up to 640. we work with over 80 different lenders and a lot of them offer down to a 500 credit score which again you can reach out to us and we'd love to help 580 is more accepted and easier to get approved okay again that's because a lot of these overlays a lot of lenders will kind of put their bare minimum at 580 because they don't want to do those 500 to 579 loans because they can be a little bit more difficult to do and take a little bit longer 640 is what's most accepted with a lot of lenders you'll find 640 being kind of the bare minimum for a lot of people um you know I've made a lot of videos on FHA before talking about the minimum credit score and a lot of people say I can't find 500. I can only find people doing down to 640. um and that's because of those overlays again we work with lenders all the way down to a 500 credit score you can reach out to us when the house you love.com uh 680. so when we start getting into higher credit scores anything above a 680 I don't know that an FHA loan is going to be the best strategy for you again FHA loan is something that I think you're only going to hold on to for a short period of time and then refinance into something more cost effective like a conventional loan um so if you have anywhere between a 620 credit score and a 680 credit score I think it's worth getting a quote for conventional and FHA however if you have above 680 there's really not a ton of reason to get an FHA loan unless you have a really high debt um that would be really the only main benefit of getting an FHA loan and there is no maximum on FHA so again you can have an 800 score and still qualify for an FHA loan so this is one of the most lenient types or major types of loans in here uh compared to you know uh conventional VA USDA and again if you're in between a 620 and a 680 also look at a conventional loan to compare those two um because in between 620 and 680 credit score is where it kind of can go back and forth on which loan is going to be better for you uh for some people maybe at a 620 score FHA is going to be better even if you can qualify for conventional um or if you're at the 680 conventional might be better even though you might still qualify for an FHA loan and so what I really recommend to a lot of people is you know if you're really wanting to buy a house and you're like I really need to get out of my current situation and get into a home and you have a lower credit score FHA can be a great option you know in this range I think what's going to be best though is if you're in the 580 640 or higher range to get an FHA loan 640 really is kind of The Sweet Spot for getting approved for an FHA loan 640 and higher so if you're in that spot and you're like you know I actually want to do a little bit of work on my credit you can go to squaremaster.com Kyle and in here is a really cool way to get to your best credit score so this is what I use to track my credit score as well and through using the software there's an average 61 Point score increase in 20 days and so it shows you different simulations on what you could pay down or actions you could take in your credit score to be able to boost it so that's in the description as well so let's talk about one of the big lender problems here is not all lenders have the ability to do the bare minimum FHA guidelines in this video we're talking about bare minimum FHA guidelines which we have lenders who can do those but a lot of lenders do have what are called overlays okay and yeah this is what we're talking about 500 is the minimum credit score but a lot of lenders they'll raise that for themselves it doesn't mean that's the rule for FHA across the board it just means that's the rule with that one specific lender so you can talk with other lenders who might go down to the minimum uh lending guidelines like we do also just because you're eligible doesn't mean you're going to get approved we're going to talk about the two different underwriting methods in an upcoming slide but a lot of times people will say oh I have a 540 credit score so this means I can I can get a loan automatically it doesn't it just means that you're eligible you still have to go through the underwriting process and there are other requirements than just the credit score to get approved FHA is not just oh you have this credit score here's a loan that's not how it works there's multiple levels of different risk analysis to see if you're approved for a loan this is just for eligibility okay so if you're down to a 500 credit score uh you know anywhere in between 800 to 500 you're eligible for an FHA loan you still have to go through the other approval requirements now let's talk about some credit events a lot of people use FHA Loans because there was something that happened to their credit there was a bankruptcy there was a foreclosure there's a short sale there was an IRS lien there was something in there and other loans like conventional loans do not like those so the waiting times for FHA is a lot shorter related to those credit events so first FHA is more forgiving on revolving and installment rates than a lot of other loans conventional loans really even though the minimum is 620 as a credit score conventional loans really like 680 credit scores and higher and they really prefer things in the 700s and higher and conventional loans can be difficult to get approved for if you do have some of these recent late payments um so on FHA non-medical collections greater than two thousand dollars total require a payment plan they're required to be paid off or five percent of the balance must be included in the debt to income ratio so if you do have any non-medical collections again FHA doesn't care about medical collections any non-medical collections then it needs to be one of these three things so for instance if you have a five thousand dollar collection 250 per month has to be included in your debt to income ratio I have a whole slide on debt to income ratio that we'll cover and this changes your affordability so this means that you would qualify for um you know 250 per month Less in a potential future home so for a lot of people that's going to be really tough for other people that's not going to be a problem at all and you can strategize with your loan officer on okay do I need to get the balance in there or can I pay it off or can I get a payment plan what's going to be the best strategy with collections also um what's really been really interesting is the bite Administration has taken loans that have been uh delinquent and kind of given them what they call a fresh start so they took them out of delinquency and out of a credit reporting system called cavers which logs all federal debt so if you have a federal student loan um likely that was reset and taken out of default if it was previously in default which can really help you with an FHA uh loan now one big note in here is even though FHA is lenient on these things um they still affect your credit score so bankruptcy still affects your credit score which then affects your approval for an FHA loan so even though they're lenient on them your credit score can still tank because of things like collections like you know FHA doesn't care about medical collections but if you have a ton of medical collections that will lower your score and lower your odds of getting approved okay um so we've covered medical collections let's walk through some of the waiting times here so if you had a deed and Lua foreclosure a foreclosure or a short sale then you're going to have to wait um three years from the transfer of that to get an FHA loan if you had a chapter seven two years from the discharge of that if you have a Chapter 13 there's two different options you can take um the first one is with a manually underwritten loan and this is 12 months on-time payments uh and a court approval to be able to qualify then the second option is through the automated underwriting system and that's two years from the discharge if you have an IRS lien then you need three on-time payments that are also included here that's the income ratio which can affect your future affordable okay so now FHA rates FHA rates are often lower than conventional rates they're similar to USDA rates uh VA loans tend to be lower as well now even though the rate is lower on conventional uh you do have that offset with fha's kind of more expensive mortgage insurance which I'm going to cover here in an upcoming slide um again I know it keeps saying that but if you watch the whole video everything's going to start to make sense when it all comes together easier than conventional to get lender credits if desired since the rate can be lower on an FHA loan what you can do is actually ask your loan officer if you want to to raise the interest rate when they do that they can give you a credit back towards your closing costs if you need it now the opposite is true you can ask your lender to lower your interest rate and then you can actually pay upfront money I kind of think of it like prepaid interest to lower your interest rate you can also get a fixed rate loan meaning that it's not going to change for let's say 15 20 30 years however long you get your FHA loan for you can also get an adjustable rate loan and the way that this works is there's a fixed period and then an adjustable period so for instance a 5 1 adjustable rate mortgage is common a 5-1 arm so that means the first five years are fixed and then the rest of the loan can change in its interest rate every single year depending on what happens in the market you can also get a temporary buy down this is often called a a 2-1 buy down or a permanent buy down a temporary buy down is where the first let's say two years of the loan have a lower interest rate this is funded by seller credits a permanent buy down is where you prepay money up front to lower the interest rate for the entire life of the loan and if you want to take a look at today's interest rates you can go to win thehouseyoulove.com rates and I chart out all the different uh interest rates and compare them to other types of loans now mortgage insurance this is the big kicker with FHA Loans is why a lot of people are kind of afraid of FHA is primarily because there's two mortgage insurance types added to every single FHA loan the first one is uh The Upfront mortgage insurance premium okay so this is 1.75 percent of the loan amount added to the loan amount most people don't pay this out of pocket it's included in the loan balance I'll get to an example right here then you also have the mortgage insurance premium this is monthly and it's 0.85 percent of your loan amount now the reason a lot of people don't like FHA loans and the reason why I only suggest FHA Loans as a bridge which I'll tell you more about the bridge strategy near the end of this video is because the mortgage insurance is going to stay on for the entire life of the loan if you get a 30-year loan you're going to have mortgage insurance on their monthly for 30 years okay um compared to something like a conventional loan that mortgage insurance drops off when you have about 20 equity uh you also on every loan have this upfront mortgage insurance as well one little caveat here with the monthly mortgage insurance on FHA Loans is if you put 10 or more as a down payment FHA mortgage insurance will fall off after 11 years otherwise if you put less than 10 percent down it will stay on for the entire life of the loan so for instance let's say we're looking at a 300 000 loan fha's upfront mortgage insurance would be five thousand two hundred and fifty dollars meaning our new loan balance would be three hundred and five thousand two hundred and fifty dollars okay you're not paying it out of pocket it's included in your loan amount then your monthly payment would be two hundred and twelve dollars and fifty cents per month just in the mortgage insurance cost all right now this does decrease uh every single year but you're going to expect a budget around two hundred and twelve dollars per month just for that mortgage insurance during the first year and this is going to be charged by your lender so you don't have to like separate uh you know pay this separately it's going to be included in your loan so monthly payment as well again this is an educational scenario everything in this video is an educational scenario so 400 000 purchase price let's say we're doing three and a half percent down is the minimum and let's say we're getting a six point one two five percent interest rate our principal and interest would be around twenty four hundred dollars uh tax let's estimate around 520 uh homeowners insurance around 150 the mortgage insurance premium 272 and you can see how all this added together brings you to a monthly payment around thirty three hundred dollars the best way to get an estimate of this quote um is just reach out to us we'd love to give you a free home loan consult we can walk you through all these decision making numbers that you need to know of things like your interest rate how much money you need down how much you qualify for and then a breakdown of all of your monthly payment as well so some property requirements in here FHA is only for a primary residence okay this is not for investment properties there is a way to do what's called a house hacking where we can kind of use it a little bit as an investment property which I will cover you can use this on a two to four unit home where you live in one unit and then rent out the others and you ultimately want to work with the right real estate agent because FHA can be a little tricky when you're looking at putting in offers number one we need to make sure that we find an FHA eligible home okay also we need somebody who's familiar with the process and we need somebody who can help us negotiate with that FHA loan when a seller looks at us and says oh it's an FHA loan is this going to close we need a realtor who can help communicate why this is going to be a good offer for the seller to accept and again if you're looking for a real estate agent referral you can go to homeandmoney.com Kyle right over here okay so some property requirements in here people get this confused quite a bit so first you have to move into the home within 60 days so after you close on the home you need to be able to move into it and this is to prevent uh you know investors from saying oh we'll move into the home eventually and then they never do and then they rent it out and then they took advantage of an FHA loan the minimum occupancy time to rent out the home is one year okay so this is where you can kind of take advantage of an FHA loan to use it as a kind of a little bit as an investment of sorts it's not an investment property um in the beginning so this is the way it works you can close on the home live in it for one year and then you can decide to move out rent it without refinancing your loan if let's say you bought the home and then you want to move out and rent it out within six months you have to refinance into an investment loan that has a much higher interest rate and a much higher Equity requirement meaning you're probably going to have to bring money to the closing table to refinance with FHA as long as you live in it for a year you can then rent it out now when it comes to selling you can sell it anytime there's no repercussions there so you can buy your FHA home and then you can actually choose to sell it within three months and then buy another home with FHA if you want to it's only when you decide to rent it out that you have to be in there for a year otherwise you need to refinance into investment if you don't that's called mortgage fraud and I promise they will catch up to you okay condos so most people with FHA tend to buy single family homes that are detached you know have a little yard with them however you can buy a condo but they can be a little bit tricky with FHA Loans so the condo association has to be approved and the reason that FHA requires us is they want to make sure that the home value is going to be stable because in a condo your home value also depends on uh the other units in the condo the condo building itself and how stable the condo association is so FHA has an approved condos list I'll put a link for that resource we can look up a certain condo project and see if it's approved but this can be very difficult to see a condo on that list there are things with FHA Loans called a single unit approval it's possible but it's tough and what ends up happening is this is if you look at for a condo project on the list it's not there then you can actually see if you can get one of those units FHA approved here's all there requirements for it it's very difficult to do first there has to be five or more units to qualify less than 10 units if there's less than 10 units only two can be FHA if it's greater or equal to 10 units only 50 can be FHA greater than 50 must be under occupied Association must have 10 of HOA budget and cash reserves uh greater than 85 percent of units must be current on their dues no more than 35 percent of property can be a commercial use and all these details have to be re-certified every three years it's tough because also condo associations are not easy to work with or get documents from and the lender has to document all this so if we're looking at a success rate of a single unit approval uh it's only 50 if you look at fha's condo approval website there was about 15 000 approved and fifteen thousand rejections um and HUD reports only 6.5 of all available condos in the US would be eligible so ultimately if you're looking at a condo I would say look at the condo approved list if it's on there great you can get an FHA loan with it if it's not on there single unit approval is an option but it's going to be extremely difficult to do and what's frustrating is usually you're already putting earnest money on the home uh likely you've done Home Inspection because it takes a long time most the time for the condo association to get all these documents back to you and for an underwriter to review them if I were you if you're looking at a condo and it's not on the condo approved list I would try to qualify for a conventional loan and you can talk to a loan officer on hey this is what I want to do if I can't qualify for commercial loan now can you help me get on the right strategy to qualify for conventional loan in the future house hacking this is one of the most attractive things about FHA loan is because the guidelines are so lenient and because the down payment is so low for these two to four unit homes house hacking is a really smart strategy I had a friend who just recently did this um he has a really high credit score he has pretty uh decent income compared to the amount of debts that he has and he was like I want to buy a four unit home I'm gonna live in one I want to rent out the others and make it work and initially because he's has a a low credit age he's only had to credit history for past you know a couple years he wouldn't be able to get approved for a conventional loan um he put all all the stuff we put through the automated underwriting software and he wasn't able to get approved however since FHA is more lenient on lower credit history he was able to get approved FHA another benefit of doing this house hacking is you can still do 3.5 percent down even on a four unit property on a three unit property on a two unit property compared to Conventional is going to require 15 to 25 percent down so this is really popular for people getting into their first home along with their first investment uh you know it's not technically an investment property or their first investment property because you can do 3.5 down up to a four unit home you can use that other income from the other units to help you qualify for the loan as well compared to a conventional loan that's going to have maybe a 25 down payment which a lot of first-time home buyers can't afford um so you can use 75 percent of the future rental income to help you qualify for this loan so that would be from the other units um also FHA does have this what's called a self-sufficiency test anything that's a three to four unit Home basically says 70 of future rental income must exceed the mortgage payment um and then usually you need three months of reserves in your bank account after you close that means that if your mortgage payment is uh for easy math two thousand dollars per month after you pay your down payment and closing costs you need to have six thousand dollars left in your account as a reserve kind of emergency fund um another strategy that kind of is in the house hacking realm is just a move up strategy and the way that this would work is you can buy a home let's say it's a single family home um you live in it for a year and then you go and buy another primary residence home you move out of your current home you rent it out and you go move into another home you don't have to refinance it into an investment because the main uh restriction to getting into investment properties is the down payment requirement that a lot of people run into so you could buy your first home 3.5 down on an FHA loan live in it for a year go buy another house rent out your current one without having to refinance and collect rental income on that you can do this same thing with the two to four unit home you can live in it for a year and then you can go buy another house getting another multi-family with FHA is going to be really difficult but you can go buy another primary residence maybe with a conventional loan and then rent out uh the unit that you're in so maybe you now have four occupied units with FHA really common strategy um and a really great way to utilize an FHA loan property condition so FHA appraisals stick with the property for four months so if a buyer let's say you're looking at a home and there was actually a buyer on the property before you and maybe a month ago they got an appraisal and then that fell through for some reason and then you come in you actually have to use the value from their appraisal so that appraisal sticks with that home for four months no matter who the buyer is okay um now what you can do is actually so you can transfer this in if a buyer had a previous appraisal with it so sometimes this can be a little bit of an issue every once in a while where you know that might have happened where a buyer before you looked to buy the home you're buying the value you know maybe came in fine but for whatever reason they couldn't buy the home uh you know underwriting fell through or something happened um but you's do still have to have that value for the next or for that period of four months FHA is primarily concerned with what's called health and safety I'm going to cover all the guidelines here in just a second so anything that's structurally sound think move-in ready with FHA Loans uh foreclosures are gonna be tough with FHA um primarily because they usually have some issues that they that need to be worked on and this is where you do want to work with a good realtor you don't want to just put in an offer and put earnest money down and pay for an inspection and get an appraisal and spend you know maybe a thousand dollars up front in inspection and appraisal and maybe any earnest money uh all for it to not qualify for FHA because what you can do then is in your post inspection uh agreement with a seller is actually request the seller to fix things that might not be up to FHA standards but it does put your deal in Jeopardy there can be a risk of that deal falling through so you do want to work with a good real estate agent who can help you negotiate those things up front spot those things up front so they don't become an issue I can't tell you how many times um you know we've done an FHA loan and the realtor thing thinks oh yeah this is no problem at all or they don't check and you know as loan officers we don't we can't go and walk through the house and and inspect it uh so the the realtor really needs to be um helping you understand if this house can qualify for FHA or not um and they can ask the loan officer like can you give me some tips and guidelines on what to look out for um but the amount of times that an appraisal comes back and then it's just they'll be wiring open wiring hanging down or there'll be a busted window or even simple things like a handrail isn't installed on stairs these are all easy fixes and things that should be done before an FHA appraiser goes out there those are really easy things to negotiate in your contract up front by working with a good real estate agent by working with a good loan officer who can help you help your real estate under real estate agent understand these things that way it doesn't delay the process and you have to pay for a secondary appraisal inspection and the whole deal just becomes annoying so just something to keep in mind um also FHA appraisals are stricter than conventional because as they are government insured FHA does Ensure the payments to investors for FHA loans and so again that's why they want the homes to be really kind of more move and ready they don't want there to be issues in the event that they need to foreclose and sell on the sell the home so appraisal highlights in here I'm going to cover all these things that your real estate agent should be looking out for and and you can look out for these things as well um if you if you would like to or you can just send this list over to your real estate agent the first thing is that FHA Loans have what's called a mandatory Clause so you're going to sign your contract on your home to say hey we want to purchase this house for you know this amount of money here's all the details but then after that your lender is going to send you a document called a mandatory Clause that you need to sign and the seller needs to sign and the mandatory Clause says that when the appraisal happens if the appraisal comes in below the purchase price so let's say the purchase price is 400 000 and the appraisal comes in at let's say 350. if that happens you're allowed to exit the deal and you're allowed to take your earnest money with you people get this very confused um because especially in the past couple years there's been a lot of like appraisal contingency waivers um there's also been a lot of appraisal gaps where people are basically saying if the appraisal comes in short then the seller has the leverage and the buyer either has to pay or lose their earnest money and no matter what your contract says the amendatory Clause is the rule of law with an FHA loan and the reason why is because even if on your contract you say if the appraisal comes in short we'll cover the difference the amendatory Clause gets signed after the contract it is the thing that rules what happens with the value of your home and your earnest money if the appraisal comes in short no matter what your contract says if the seller signs a mandatory Clause after the purchase contract is signed then you are allowed to leave the contracts exit the contract and take your earnest money with you if the value comes in short so you do have this really nice protection in here the seller doesn't have to sign it but that means you won't be able to get an FHA loan the seller has to sign this to get an FHA loan um okay so some really quick uh highlights here some things to watch out for if you're looking through a home and you want to write an offer with an FHA loan um the roof needs to have two years of economic life remaining no exposed electrical wiring why are people selling homes with exposed electrical wire I can't tell you A lot of times I've seen an appraisal and there's just open wiring hanging just it's not that hard to cover it I don't I I don't know that's a pet peeve of mine um sellers if you're selling a house just cover your electrical wiring it's not hard uh appliances if they're being conveyed with the property they need to be operational if you're getting an oven in a fridge with a property and needs to be operational hand reels are not needed if they're uh if their absence doesn't pose a safety threat um this can be a difficult one because it can be kind of subjective really uh what I've seen is anything that has three steps or more uh needs to have a handrail on at least one side um you can even get away with a temporary handrail that's just some two by fours uh really solidly screwed in that is absolutely an option you don't have to build something nice and ornate um stairway down to the basement needs at least one handrail no standing water on the site near the foundation the attic must be accessible if it's not the appraiser is not going to move things out of the way to access the home the seller needs to make it ready to be accessible by an appraiser um a spec pest inspection is only required if the current or past infestation is evident um the property line cannot be located within 300 feet of an above ground or subsurface stationary storage tank with a capacity of 1000 gallons or more of flammable or explosive material this is more common for people if they want to buy a home right next to a gas station which is surprisingly somewhat common if it's built before 1978 there can be no chipped or peeling paint on interior or exterior of the home if it's built after 1978 the exterior defective paint that exposes subsurface must be repaired and this is uh you know these two rules are because of lead-based paint broken window glass needs to be replaced while cracked glass does not okay so let's run through some example homes sometimes it's helpful to run through some you know real life scenarios so I pulled some of these uh off of Zillow and this is all you know public and data here all the costs and payments are just averages um in here so this is in Fresno California listed for four hundred and ten thousand dollars um so in here if we did 3.5 percent down to be 14 350 I'm going to estimate closing costs around eighty two hundred dollars okay we could ask for a one percent seller credit that'd be forty one hundred dollars that means our down payment plus our closing costs minus the seller credit gives us a total do it closing of eighteen thousand four fifty now let's assume we got this alone with a 6.125 rate that would give us a principal interest payment of 2446 dollars per month mortgage insurance would be around two hundred and eighty dollars per month now the rest of these numbers are going to be averages specific to the property taxes on this home are around 300 ho homeowners insurance hoi um is really going to be more specific to you but estimate around 144 dollars and there was no HOA here so the total bill from the mortgage company per month on this home would probably be around 3169 of course you still have utilities that you do need to pay but those aren't mortgage costs this is what's going to be the mortgage cost that the lender would give you a bill for every month okay let's run through another one this is in Manor Texas uh I think it's how you say that Mainer manner probably uh just under 500 000 uh so again three point five percent down seventeen thousand three hundred and twenty five dollars estimate closing costs 9900 and then on this let's say we ask for 1.5 seller credit so 1.5 the purchase price towards our closing costs um so down payment plus closing costs minus the seller credit is nineteen thousand eight hundred dollars again let's say we have a six point one two five percent rate our principal and interest payment would be just shy of three thousand dollars mortgage insurance premium would be three hundred and thirty seven dollars and then again the rest of these numbers are estimates based on the home so property taxes for whatever reason on this home are really high uh at eight hundred dollars uh homeowners insurance around 173 that would give us a total of 4282 dollars per month to buy a home like this now if you're looking at homes that are much less than that uh then of course your numbers are going to be lower if you're looking at a home that home numbers are much higher uh then the numbers would be higher as well one thing to keep in mind is FHA has loan limits in here which I'm going to cover in just a sec you can buy a home that is much more expensive than the loan limit but your loan can't exceed that amount you have to bring a down payment higher than the difference okay so let's talk about these loan limits the loan limits change based on the amount of units that you have and if it's in a normal area or a high cost of living here so this is how this works if we're getting let's say a one unit home which is common for most people this scenario is going to be what most people run into of the loan limit being 472 000 30 all right if you're in a high cost of living area this goes all the way up to just over a million dollars so think somewhere like San Francisco Sacramento Nashville Miami these are going to be high cost of living areas and that changes uh the loan limit for FHA and I do have a link for the loan limit lookup tool in the description where you can type in the county or city that you're in or looking to buy in and it will show you the loan limit um then if we get to two units three units and four units you can see how that changes along with high cost as well so the way that you then find your max purchase price based on the loan amount is by taking the loan limit so in this instance let's run with the you know what most people are going to run into 472 thousand thirty dollars divide that by 0.965 we got that number from one minus 3.5 percent down it's the opposite so this is the total loan amount gives you 489 one hundred and fifty dollars so the max that we could buy with a one unit home for most of the US with an FHA loan would be four hundred and eighty nine thousand one hundred fifty dollars after three point five percent down we would have a loan of 472 30. okay and uh you can kind of do the difference here let's say you want to buy a million dollar home you can buy a million dollar home with an FHA loan in most of the US but you're gonna need to do a million dollars minus 472 030 that's going to be your down path you can still get a loan for 472 but that's going to be the maximum with FHA in most areas all right now income and affordability again you still have to qualify for an FHA loan just just because you have a certain credit score doesn't mean you're automatically going to get it so you need a two-year stable history of employment now this doesn't mean you have to have any certain set length of time at a specific job a lot of people interpret this as I need to have two years at one job in one position absolutely not true just a two-year history lender needs to see over the past two years what jobs have you done what income have they had is it stable is it trending upwards does it look like it's going to continue in the future so it's ideal if it's in a similar field um if you are changing jobs this is very common you know especially with covid recently um there were a lot of people who change jobs to different hospitals and they were still employed as maybe a nurse in multiple hospitals with similar income or income that was increasing but it was all within the same field and that's the most helpful you can get approved for an FHA loan if you're changing jobs in multiple Fields but it becomes more and more difficult when you do that an underwriter wants to start looking at okay do you have certifications for these new jobs is there consistency in these new jobs or these new Fields it becomes a little more tricky when you start working in a bunch of different fields um retirement and school do count uh so let's say um you're starting as starting a job as a new nurse and you just went through four years of nursing school that counts as your stable employment um getting onto the job so you don't have to have two years as a nurse your college will count and often an underwriter will ask for college transcripts just to verify uh that you have that or if you're starting in a new line of work a new field an underwriter might ask for certain certifications that you have to see if that can help you qualify for the stability of your employment retirement counts as well um so even though it's not like a employment necessarily it's kind of that's what they view it as um so you can qualify for an FHA loan if you just are on social security income and pension income and maybe you have a side job retirement is perfectly fine if you have a six month Gap or greater then you need to have six months on the job or more okay that's one of the big rules here with job gaps non-taxable income so things like social security income can be grossed up by 115 percent um this is because non-taxable income obviously isn't taxed and lenders look at gross income pre-tax income to qualify you for a loan so let's say you make twenty five hundred dollars a month in Social Security we multiply that times 1.15 and you would qualify for two thousand eight hundred seventy five dollars per month as your affordability income lenders would then use that to see how much of a home you could afford um I'll get to the debt to income ratio here in just a second there's no minimum or maximum income limits on these however there often are income limits on down payment assistance programs if you add it on to the FHA loan and then if you're self-employed two years tax returns average is what's most common for most so lenders do look at gross re-tax income when you're looking at your own budget and affordability of how much you can afford of course you're not going to look at free tax income you're going to look at your take-home pay but lenders look at pre-tax income because net income gets adjusted too much by things like 401ks or maybe there's garnishments or there's other different things pulled out of your uh paycheck so they look at pre-tax income um here are the the limits on what's called a debt to income ratio so debt to income ratio is what FHA Loans use to see how much house you can afford so when you go to a lender and they're like hey you qualify for three hundred thousand dollars they're not just pulling it out of the air they're using a mathematical formula called a death income ratio and this is where you take your total monthly debts divided by your total monthly gross income and that gives a ratio and it needs to be under a certain limit and there's two of these ratios to make it even more complex the front end is just your potential mortgage payment okay your future mortgage payment you want to qualify for the maximum that can be is 46.99 now that's only available for people who have a really high credit score and this all depends on what the underwriting software says so these are the absolute maximums but a lot of people don't qualify for the absolute maximum okay this is just the absolute maximum you may see if you have a really high credit score if you have a lower credit score those maximums are going to Get shrunk uh the back end is going to be your future mortgage payment plus any other monthly debts you have like a car loan student loans credit cards it does not include expenses things like groceries Gas Utilities are not included um so your monthly minimum debt payments plus your future mortgage payment cannot exceed 57 of your monthly gross income you can see that's very high right the fhas allows you to go very very high um in your uh what alone the maximum loan you can get so not everyone can get approved this High also if you're getting a manually underwritten loan then it's going to be much lower I'm explaining manual versus automated underwriting in a second and if you're in a community property state so Arizona California Idaho Louisiana uh Nevada New Mexico Texas Washington and Wisconsin um community property States mean that your if you have a spouse their debts have to be included in your debt to income ratio as well okay they can be on the loan if you want them to include their income but even if they're not on the loan their debts have to be included because of the laws of a community property in those States okay so let's run through an example let's say you're looking to buy a house with you and your spouse or maybe they're not your spouse maybe they're just a partner maybe they're just whomever to you let's say that you make sixty five thousand dollars per year in your gross income let's say they make forty five thousand dollars per year in your gross income do them you can do the math for your own situation too we can also help you do this as well if you would like uh so combined you make nine thousand one hundred and sixty six dollars in gross income per month so let's say that you have a 450 per month car payment and 250 per month student loans let's say they have a credit card for 250 student loans for 400 and child support for 150. yes that is child support and alimony is technically a debt in the mortgage world so the maximum that you get on the front end would be forty three hundred dollars the Max on the back end would be thirty seven hundred dollars lenders would then take the lower number this would be the maximum absolute maximum you could qualify for with an FHA loan so you can also have a cosigner or a co-borrower on an FHA loan both are allowed and the difference is who is going to be on title a co-signer is on the mortgage and is fully responsible for the mortgage just as you are they just don't have ownership on the title of the home a co-borrower is responsible on the mortgage just the same but they do have ownership on the title personally I think that if you're ever going to sign for somebody on a mortgage that you need to have ownership on the title I think it's really dumb personal personal preference to sign up for a debt and have no stake in the collateral of the home and that's just my own personal opinion FHA allows what's called a non-occupying co-borrower and this is a really common strategy to help somebody qualify for a loan and this is primarily done with a relative so this happens a lot with somebody who maybe tried to qualify for an FHA loan by themselves but they couldn't qualify for some reason they could have somebody like a parent or a child sign as a co-borrower on the loan with them non-occupying means they're not going to live there but they are going to be on the loan and responsible for the debt with you and that can help you qualify for a loan so if you're a relative so a child a parent sibling grandparent and uncle or in-laws then it's still three and a half percent down if it's a non-relative FHA puts that all the way up to 25 down so you can see FHA is not a huge fan of the non-relative non-occupying co-borrower uh on a loan but this is a very common strategy for people who are trying to get approved for a loan and they can't do it on their own and it doesn't mean that they're a bad person or they won't be able to pay it back mortgage rolls are strict and have all these little nuances to them and not everyone fits in these pretty little boxes and so sometimes people need help to look better on paper to qualify for a loan just because you can't qualify for a loan doesn't mean that you're a bad person and can't pay back money I see this happen all the time where people are really good at paying their their you know other rent payments or they're really good at covering their bills or you know I've talked to a veteran once I feel like he's the best example of this uh guys fantastic with his money uh always pays everything on time has uh backup set aside um the emergency fund set aside really good with his budget but then he got into a car wreck and got careflighted and had a hundred thousand dollar medical bill well he didn't have a hundred thousand dollars and his credit got destroyed and just because he couldn't qualify for a loan in a traditional way it doesn't mean that he's a bad person that can't pay back money so sometimes people add this weird levels of shame to it of oh if you need a co-borrower then you shouldn't get a loan that's not the case these guidelines here like everything in the mortgage world it's all just kind of made up on what it statistically it looks like for someone to pay back a loan just because you don't fit that little box doesn't mean that you're a bad person doesn't mean that you can't actually pay back a loan you just might need help looking better on paper uh to get that loan now I do have a tool called the max purchase price calculator because a lot of this uh you know this all the rules and the calculations around that's income ratios can be kind of confusing so I put this together in an Excel document if you would like to use it um so the link is in the description you can also go to win thehouseyoulove.com maxprice and what this allows you to do is put in your scenario so what kind of down payment you want you know we're looking at FHA so 3.5 interest rate you can also put in your income and your debts and what it will do is go through a whole affordability dashboard and show you an estimated Max purchase price estimate of your monthly payment break that down for you as well show you estimated closing costs gives you different risk levels for different payments so you know you could go with a really risky uh payment or you could go with something that's more safe and depends on what you want but it allows you to explore all of the numbers in here and see you know estimate of utilities and maintenance costs and even shows you how uh where's it at shows you how all the math is done um and then shows you different uh affordability theories based on people like Dave Ramsey or the 2 6 ratio or qualified mortgage or 3033 um by a lot of personal uh Finance gurus so when the house you love.com Max price if you don't want to do the math yourself if you want to know that you're doing it right you can use that tool okay so now FHA versus other loans this is one of the four main loan types there's conventional loans there's FHA there's USDA and there's ba and of course there's tons of other different types of loans those are the most common that you're going to see here um so if you have a 620 credit score this is the conventional uh credit score minimum so anywhere from a 620 to a 680 I think you should get a conventional loan quote and an FHA loan quote too because you know just because uh let's say you have a 640 credit score you still might not get approved for a conventional loan um so that's why a lot of people will look at FHA now if you can if you're in that like 640 range like 620 to 680 go ahead and get approved for or try to get approved for conventional loan get a quote for that and try to get approved for an FHA loan and get a quote for that and then you can compare the two talk to your loan officer hey can you walk me through the differences of these two which one would be better for a lot of people what makes a lot most Financial sense is to actually go with the FHA loan have that build appreciation in your home build equity in your home and then work on your credit and then let's say two to five years refinance into a conventional loans so we get cheaper mortgage insurance that will eventually fall off also consider VA and USDA loans they also allow down to a 500 credit score and they both have a zero down payment with them they're not down payment assistance they just don't have down payments so VA is for veterans USDA is only for homes in eligible rural areas and it does have an income limit as well but we can help you with that you can just go to win thehouse sale.com set up a consultation with us and we'd love to help show you some of those options USDA and VA are government loans as well so they're really flexible when it comes to credit standards and qualifying they just have a couple other restrictions like one requires you to be a veteran and the other one requires you to live in certain locations student loans this one can be a really big tricky subject that people are kind of afraid of a lot of people can still qualify for a mortgage even when having student loans sometimes I think the fear is greater than the reality of the situation so what's a lot of strange about FHA Loans is that when you get one your profile is going to be checked against what's called Capers and capers is um think of it almost like a credit report that the government has for anyone who hasn't paid back federal debt so if you have a federal student loan and you haven't paid it back let's say it's delinquent your name is going to be added to the cabers database and it's the whole database the government has to say who has and hasn't paid back federal debt if you are in the cabers database because you haven't paid back federal debt then you won't be able to get an FHA loan until you're out of cabers now it's been interesting as uh we've seen a lot of the student loan weirdness happening over the past year and kind of a lot of in and outs on like there's pausing and is there going to be forgiveness and what's gonna happen uh the bite Administration actually restarted cabers so if you were in default for student loans that was actually pulled out of a default um and so that might be a really good opportunity for you if you were in cabers there is a current pause on student loans uh through 6 30 of 2023 and that might change uh you know after this video comes out this is just as the time of this video that's what the current pause is so FHA Loans allow income driven repayments um this says ird this should say IDR so income driven repayments are when you're on a program with student loans where it actually lowers your monthly payment those student loans and basically what happens is you're allowed to use the income driven repayment to qualify in the debt to income ratio for an FHA loan so like we talked about with the student loan payments in the debt income ratio uh if you have IDR that can lower what that payment is which can help you get approved for more the only weird caveat here is you know let's say you're on income driven repayment and your payment is a hundred dollars per month then that hundred dollars per month is included in your debt to income ratio um which can be a lot better than maybe maybe 500 per month that the normal payment would be however if your payment is zero dollars per month or deferred then the lender has to use point five percent of the balance included in the debt to income ratio so if you have a 50 50 000 balance in student loans that would be twenty uh 250 per month in the debt to income ratio so this current pause has caused a little bit of uh some uh trickiness with FHA loans for people who have a really high student loans because their loans are automatically deferred lenders need to use the point five percent of the balance now what you can do is you can talk to an advisor like someone at like loansense for instance and have a link for them down in the description what they can do is help you get out a deferred status and into an income driven repayment plan to help bring down that payment that we can qualify for more of a mortgage if you want to okay um so this is how this would work uh you know if you're deferred and can't qualify you can get on a government plan uh like an income driven repayment plan type to avoid the point five percent um so you can go to winhouseelove.com student there's a little calculator here that would show you how it would reduce your student payments this is not refinancing your student loans at all all you're doing is enrolling in a specific type of IDR program to lower that payment pull you at a deferred status so you can qualify for a loan by having something including your debt to income ratio that's less than the point five percent so there's two different types of underwriting with FHA Loans there's automated and manual so the way that automated underwriting works is you submit an application into a lender so that application data is reviewed by a software okay and the software is kind of going to give like a thumbs up or thumbs down and usually give some very cryptic explanations as to why if there was a thumbs down this is where your loan officer can really help you strategize how can we get the software to give an approval so after it's put into the software that data is then verified by a human and those two primary humans are your loan officer who's going to help you with your application and then also an underwriter so ultimately your loan officer is going to take your application run it through the automated underwriting software which runs through all these rules to see if you qualify for an FHA loan then once that's done then underwriter is going to take a second look and basically what they're doing looking to do is they want to see that if the software has that you make five thousand dollars per month and is issuing an approval an underwriter is going to take a look at your pay stubs and your W-2s and your tax returns and see do you actually make five thousand dollars per month or do you actually make three thousand dollars per month so that's where you have the software plus humans who give you this approval on a loan again it's not just people in the back end being like well I think John's a good person so we're gonna give him three hundred thousand dollars that's not how it works you submit an application your loan officer helps you with that and then the data is verified by a human both your loan officer and an underwriter um so automated underwriting is the easiest and most common option when you get into manual underwriting it takes longer there's more paperwork and often there's a higher interest rate associated with it lenders like automated underwriting because there's a level of um confidence that the loan will get approved when it's approved by the software now I want to get to this ring history in just a second this right here is kind of a strategy that a loan officer may use with automated underwriting so Aus this is the automated underwriting system first what a loan officer would do is submit your application data to the automated underwriting software and they're going to see it does it give a thumbs up or thumbs down if it gives a thumbs up great you're pre-approved you can start looking for homes you get under contract you move forward with the loan great Dandy super easy if you don't get approved a loan officer is going to take a look and see what other strategies can we use to get approved for that loan do we need to do things like adding a co-borrower do we need to add rental history do we need to show that you have more in savings do we need to like there's all these different strategies to see how we can get the software to give you an approval so one of the easiest ways is to add your rental history to the underwriting software so for this you need to have a 620 credit score higher you need to be a first time home buyer and you need to have 12 months on-time rental history if that's the case your rental history can be added into the underwriting software and that can help nudge your approval in the right direction or maybe you've got a thumbs down the rental history now turns your approval into a thumbs up if it's still thumbs down and a loan officer might suggest looking into adding a co-bar again someone like a family member who could sign on the loan with you if that doesn't work or if that's not an option because for a lot of people that's not an option then might be looking at working on credit like what are other things on your application that you can do to help your approval your loan officer can help strategize this with you um so this is where often credit work is usually needed to see maybe in the next three months can we nudge this approval in the right direction by clearing up maybe a disputed account maybe a collections account and you know maybe an error on the credit report if that doesn't work then we're looking at a manual underwrite and manual underwriting is a longer process a lot of lenders don't offer it and it can be more expensive there also are a lot of stipulations inside of manual underwriting it's not possible but it's not the most fun to go through okay so again not available to all lenders expect more paperwork longer closing times and a higher interest rate so this is used for people who have no credit score loans and refer loans refer loans are those thumbs down when the underwriting software gives a thumbs down it doesn't actually give a little thumbs down it says refer with caution so it can either be approve eligible meaning the loans approved or refer with caution meaning refer to manual underwriting with caution is basically what it says so either you have no credit score and we need a manual loan or you get a thumbs down from the underwriting software and we need to manually underwritten loan so manually underwritten loans just mean that an underwriter is going to have to look at your loan file line by line instead of a software and they're going to look at it with more scrutiny and with more rules so the way payment history works if you have a manually underwritten loan is in the past 12 12 months you can have zero late payments okay on housing and installment loans installment loans are you have one balance and you pay it down monthly to zero okay so like a car loan or a mortgage or something like that a revolving loan is something like a credit card uh so in the past 12 months you can have two 60 days 0 90 day lates okay in the past 24 months there's no rules on the revolving uh but you can have a maximum of two 30 day lates okay um then we go over here manual underwriting loans also have limits to their debt to income ratio we talked about those limits with the automated underwriting software the automated underwriting software doesn't share all the limits with debt to income ratios based on your credit score however it does change but they just don't uh publicize that with manually underwritten loans you have to look at what your credit score is then it shows you the maximum ratio that you can have and then you need what's called a compensating fact so for instance with this chart what we would look at is let's say you have uh you know the underwriting software gives you a thumbs down and let's say that you have a oh let's say a 580 and above so we have these two options here and let's say we want to get approved for 37.47 because we want to buy as much house as we can so we're going to look here this is saying we need one of the following either verified and documented cash reserves usually three to six months worth a minimal increase in housing payment or residual income and your loan officer can help you run through all these things we can see all these little stipulations tacked on to the manually underwritten loan so again these are absolutely possible it's just a lot easier to go through the automated underwriting experience and your loan officer can help you through that so some special requirements here uh or special features is DACA is allowed FHA is allowed for document recipients um you just need an employment author authorization document um to be able to qualify also house hacking like recovered uh then also FHA has what's called 100 down HUD real program so these are really difficult to find but if you go to the HUD home store you can find the housing of Urban Development foreclosed properties and actually you can get an FHA loan with a hundred dollars down instead of three five percent down again it's super difficult to find these homes but just should point it out um you can get a 203K it's a type of a rehab loan that you can get with FHA I'm going to cover a little bit more detail with that there's also the bridge strategy I'm going to cover here in a second you can get down payment assistance and FHA also has a one-time close construction option not available through most lenders and can be really difficult to find and get but this is where you would purchase land and then all also Finance the loan to build on the land all at the same time so and then when it comes to refinancing because you have this loan you want to potentially maybe refinance in the future FHA allows what's called a streamline refinance to a lower rate so you have to wait at least six months and also the market rate has to be lower so let's say after six months of living in the home uh interest rates drop you can get an A new refinanced FHA loan with a lower rate without having to prove uh income history credit or appraisal again also what's really common is to go from FHA to Conventional and this is primarily if your credit score increases or to remove the mortgage insurance premium just to refinance into cheaper debt right because mortgages are just debt and what we want to do with debt is just anytime we can get cheaper debt let's go to the cheaper debt instead of paying more for it kind of the same way with you know if you have a credit card that's 25 interest well if there's an option to get a credit card at 15 interest that's going to be a better option than the 25 interest same thing with mortgages is you know we have an FHA loan well it's not a terrible Loan By Any Means there is cheaper debt available uh and if we can't qualify for the cheaper debt let's use the FHA loan work on what we need to work on talk to your loan officer about what you need to work on to qualify for conventional and then refinance into the cheaper debt in the future also you can get cash out with FHA but you have to have a minimum of 20 Equity so let's say you pay down your home to like 50 Equity you could pull cash out to use towards you know savings or paying off debt or uh whatever you want so some rehab options in here two primary rehab options with FHA you have a 203K standard and a 203K limited the standard is for uh work primarily exceeding thirty five thousand dollars it has to be a minimum of five thousand dollars worth of work and it can cover structural repairs and I have a whole video uh you can just search when the house you love uh 203k covering this there's also a limited one the maximum is thirty five thousand dollars in repairs there is no minimum and there's no structural repairs allowed with that now the bridge strategy this is what I commonly suggest to people if they are looking at an FHA loan is again FHA should not be this like long-term option that we hold for 30 years because FHA is not bad there's no moral quality to loans there's no more equality to money to be to be frank like nfha loan isn't good or bad thing it just exists it's just a tool um and really when we look at like tools like if you're using a hammer or screwdriver like which is going to be the best tool for the job uh for some people and FHA is the tool that they need for the job at the moment of qualifying for a home getting that Home Building appreciation and amortization building equity in the home and then refinancing to cheaper debt in the future so that's the bridge strategy we use the FHA loan almost as a bridge to get us to a better loan so in this you'd use FHA to lock in a home and build appreciation and amortization so maybe you're in that spot where you're like hey I have a 580 credit score and you know building my credit was probably going to take maybe a year or two to get it to where I need to be to qualify for a conventional loan well you can buy a home now with an FHA loan uh build the appreciation in that right home values have appreciated a ton over the past two years I build also the equity in that because when you're renting you don't build any Equity compared to owning a home while you then own the home you want to work on what you need to and these can be things like your credit uh increasing your income um lengthening the seasoning that you had for maybe a a bankruptcy or something like that and then also working on your income ratio maybe you need to pay down debts to qualify for a conventional loan then after you've worked on all this refinancing into a conventional loan we use the FHA loan as a bridge maybe over you know one to five years to then refinance into cheaper debt in the future okay and then finally uh success rate and seller perception uh FHA Loans are just less attractive than conventional they shouldn't be uh because if you're approved for it you're approved for it and it should close just the same way that a conventional one would and actually what a lot of sellers don't realize is conventional loans are much more finicky than FHA because FHA is more lenient there's a lot more room for things to change we're on a conventional loan uh people often can be on the line of qualifying for conventional it can be actually more shaky than an FHA appraisal just because there's a lot more leniency on an FHA uh approval um as the market cools it's beginning to get more accepted to sellers nationally around 10 percent of loans are FHA and then I want to show you really quickly a clip from my friend and wonderful real estate YouTuber Javier badania on FHA Loans just six to eight months ago FHA was having some bad luck and specifically my market here in Phoenix they are only made up 6.6 percent of all home purchases whereas cash made up 30.7 and conventional made 56.3 so as the market has been turning and of course everybody and their mother are saying it's a terrible time to buy one person who has made out great out of this is FHA buyers FHA buyers are now responsible for 13.3 percent of all purchases and cash purchases have dropped down to 24.9 so yes with less buyers means you have a better opportunity to get not only an FHA accept offer accepted but you know getting extra stuff like uh additional closing costs to buy down rates additional closing costs to potentially pay your closing cost um so you're going to put yourself in a lot better position as an FHA buyer so it's Back to Basics folks you're no longer at a disadvantage having an FHA loan when you're making an offer make sure you do some research beforehand figure out the seller's Equity position meaning how much they own the house and figure out what the offer situation is if it's a no offer situation you have leverage you have the ability to go in aggressively on the price going aggressively on the closing costs and really go there and and once again doesn't matter what loan you have you're a solid buyer go and get your money honey now just because the market is cooling doesn't mean that there's houses that are gonna hear that because there's there might be great houses that just have multiple offers yes believe it or not they're still out there uh we just a recent kind of mine just lost on a three offer situation so if it's a situation you know your your Leverage is a lot lower and even though if you're FHA still make a strong offer if you need closing costs maybe add them on the purchase price or maybe not go as aggressively as the others so you're now part of the part of the game you're part of the playing field so uh stop looking at yourself at a disadvantage go out there get her done back to you uh this is when the house of your dreams uh Javier vidania back to you Kyle Seagraves so please go over and subscribe to Javier vadanya's YouTube channel also he has a patreon we go to patreon.com Javier vidania the link will be in the description has a ton of resources and you can connect them directly there if you would like to so ultimately you want to make your offer stand out because again from the seller perception it's not the most favored loan so what we can do to make our FHA offer Stand Out is one thing we could do is not ask for seller credits or we could reduce the amount of credits we ask for the more that we're in a buyer's market the more leverage you have to go with FHA and ask for seller credits the more we're in a seller's market the more that sellers tend to prefer conventional loans and they don't want buyers to ask for credits also you can have a limited inspection contingency I would never suggest waiving your inspection contingency entirely I think that every home every home buyer should have an inspection done but what you can do is you can say we want an inspection contingency however we're not going to nickel and dime you we're only going to ask for requests that are above let's say five thousand dollars or you set the limit maybe you talk with your realtor you say we can't spend more than three thousand dollars out of pocket so we'll only back out of the deal or ask the seller to remedy problems if they're above three thousand dollars because sometimes sellers don't want to feel like they're going to get nickeled and dimed when you do an inspection um so that can help with your offer there also get a rock solid approval and ask for a quicker closing so talk with a loan officer make sure that everything is all documented and buttoned up ask them what the closing time could be and then have your loan officer submit your documents and everything to an underwriter ahead of time to get that closing done quickly and we can do that too just go to winhouseyoulove.com set up a consultation with us and we can talk you through that so ultimately how do you get one you can get an FHA loan with most lenders in the US of course I would love for you to talk with my team and get an FHA loan with us or look at other loan options with us so what you can do is schedule a free home loan consult with my team and you can do that by going to winthehouse you love.com you'll then see your FHA quote and maybe other loan options that you qualify for to see if there are other better alternatives for you you'll then shop for your home and then you can write an offer and then we're going to help you close on the loan and ultimately when do you start uh really I don't think there's too early in the process to begin this because you want to start looking at your decision making numbers as soon as you possibly can so you can plan appropriately for the next steps in the future right we want to spot any roadblocks any hurdles anything that's going to get in the way of your goal as soon as we can that way you can do the right work the right meaningful work before you find a home and then you aren't able to purchase it because the payment was higher than you expected or there was something in the way of your credit from you being able to qualify for for a home okay so please reach out to us we'd love to start the conversation with you and see if FHA is the right option for you

Channel: Win The House You Love

Views: 725,305

Keywords: win the house you love, kyle seagraves

Id: TheylbfroxY

Length: 91min 44sec (5504 seconds)

Published: Wed Dec 28 2022