FHA mortgages are very popular, partially due to their low down payment requirements for qualified borrowers. As little as 3.5% down is required for candidates that meet the credit score requirement. That means for a house that costs $100,000, the borrower only needs $3,500 down, which is very attractive in today’s market. Understanding the ins and outs of an FHA mortgage is very important for loan officers and mortgage brokers alike.
Here are four tips for closing FHA mortgages:
Tip #1: Lower Credit Scores
While it is true that a 3.5% down payment is possible with an FHA mortgage, the borrower has to have at least a 580 FICO score or greater. If the mortgage applicant has a score of 579 or lower, then the down payment required is going to increase. For credit scores between 500 and 579, applicants are eligible with a 10% down payment.
According to The Mortgage Reports, borrowers with scores on the lower end of that range are less likely to be approved with a minimal down payment. It is recommended that borrowers with scores closer to 500 increase the amount of money down to improve their chances of approval.
Tip #2: Down Payment Gifts
Unlike some other mortgage programs, an FHA mortgage allows for 100% of the down payment to be received as a gift. These gifts can come from family, friends, employers, and other approved organizations. What’s important to remember with a gifted down payment is that it must come without the expectation of repayment for it to be considered a gift.
Tip #3: Motivated Sellers
There are instances when the seller is motivated to sell to the buyer. They might be friends or relatives looking to make a deal. Sellers are not allowed to help with the down payment, but they can assist with the closing costs of the mortgage. FHA loans permit sellers to help with up to six percent of the amount borrowed towards closing costs. This means that the seller can contribute toward lender fees, property taxes, escrow fees, homeowners insurance, and title insurance.
Tip #4: Closing Costs
FHA mortgage costs are similar to the costs of other types of loans with two exceptions. The appraisal on an FHA loan is a little more complicated and can cost slightly more, adding approximately $100 to the cost. In addition, FHA mortgages require an upfront mortgage insurance premium (MIP). This can often be included in the principal of the loan.
Pacific Union Financial
Pacific Union Financial, LLC is a full-service mortgage lender providing originations and loan servicing across the United States. A privately held direct lender with Fannie Mae, Freddie Mac, and Ginnie Mae approval, we originate loans through our Retail, Wholesale, and Correspondent channels. Let us know how we can help you expand your business.