How to Save Your Home from Foreclosure!

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Fannie Mae recently released updated underwriting guidelines for new mortgage loans that directly address individuals with various types of foreclosure history. Potential borrowers with a foreclosure on their credit record must wait 5 years to be considered for new funding, and are subject to additional credit and down payment requirements for 5 to 7 years. Deed-in-lieu-of-foreclosures warrant a 4 year wait with additional requirements for 4 to 7 years. Finally, the silver lining…Short Sales require only a two year wait with no additional requirements. These new guidelines make short sales a more attractive option for homeowners as well as provide realtors with a tremendous opportunity to assist distressed homeowners with a short sale AND future home ownership. This information can be very valuable when meeting with short sale prospects.

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 To further assist homeowners having trouble paying their mortgages because of Hurricane Charley, HUD issued Mortgage Letter 2004-36 and Mortgage Letter 2004-37. These letters provided lenders with information on FHA-insured loan programs that can support borrowers’ efforts to rehabilitate or replace their homes; instituted a 90-day moratorium on foreclosures of FHA-insured loans; and encouraged servicing actions, such as special forbearance, mortgage modification, and waiver of late charges to help homeowners avoid foreclosure.

FHASecure Loan Program will allow homeowners who cannot afford their payments to refinance with FHA insured mortgages …if they have good credit.

The FHASecure Loan, a new program to help homeowners avoid foreclosure will save some of almost a half million at-risk families by allowing them to qualify for FHA’s mortgage insurance as long as they have a reasonably good credit. Only very recently has FHA permitted delinquent borrowers to qualify for their loan program. 

But, perhaps the best news of all is that the FHA Secure will also help homeowners refinance their existing, in default, loans with FHA insurance.

 Basically the plan is for FHASecure Loan to offer borrowers caught up in the subprime crisis an option for refinancing their ARM loans to loans which the agency will insure. However, one thing may make it difficult for some homeowners to qualify. That is, they must have made payments on time for at least six months prior to their ARM loan’s change date to a higher rate. The effect is to protect these responsible families who were taken in by rates that have since increased (sometimes double or triple) and have caused them to default on their increased payments.

FHA will begin a new program called FHA Secure which will permit homeowners who have a good credit rating but can’t afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able refinance their loans, meet their monthly payments and keep their homes

• A history of on-time mortgage payments before the borrower’s loans reset;
• Interest rates must have or will reset between June 2005 and December 2009;
• Three percent cash or equity in the home;
• A sustained history of employment; and
• Sufficient income to make the mortgage payment.

It seems that the FHA’s focus will remain on looking to the good credit profile of applicants rather than a credit score, And, until now the FHA has not permitted delinquent borrowers to qualify for their loan program.In the past, the FHA has not required borrowers to have a minimum credit score, rather they have focused on one’s overall credit history. Therefore, it may be possible to qualify even though you may have a low credit score, perhaps 500 (or less). Potential candidates for the FHASecure Loan program must have made their payments on time for at least six months prior to their ARM loan’s change date to a higher rate. Their ARM loan’s rate change date(s) must be between 2005 and 2009. To date no mention of a particular credit score has been mentioned.

    What is a FHASecure Loan?

 This is a completely new and innovative program to help qualified families avoid foreclosure and will soon be available to homeowners to help them avoid financial crisis. Until now the FHA has never permitted delinquent borrowers to qualify for their loan program. However, the new program will help homeowners refinance their existing loans even though they are in foreclosure, if they had a good credit history six months prior to the ARM rate increase.

What is a good credit History? What is the minimum credit score to qualify?

 The FHA, in the past, have not required a particular minimum credit score, rather they have focused on one’s overall credit profile. To best determine if you qualify for an FHAsecure loan, you should contact an FHA approved lender.

Will an FHA Secure Loan cost me more if my credit rating is under 600?

 Again, the agency does not go by credit scores specifically but rather by credit profile or credit history. So understandably premiums will be higher for those approved applicants with a greater credit risk.

FHA Loans …with bad credit

 FHA offers loans that enable individuals to acquire a home with a down payment as low as 3% - a percentage much lower than most limits for regular loans. Thus, the loan program under the FHA is ideal for first-timers and those with limited funding. It should be noted that the FHA insures your loan and does not offer home loans. To do a FHA refinance home loan with bad credit, this aspect can be a real challenge for most people.

An FHA loan applicant should be backed up by a positive credit history, a reasonable income level and adequate cash down payment to close the loan. To qualify under the program, a borrower should also settle closing costs worth about 2%-3% of the house price. This could also include fees for attorneys, title search and insurance, FHA insurance funding, and loan origination.

The borrower’s monthly housing cost must not surpass 29% of his gross monthly income to qualify for the loan. Property taxes, mortgage principal and interest and insurance are computed to determine total housing cost. This total housing cost and long-term debt make up total monthly cost, which must not exceed 41% of gross monthly income. Credit card balances, auto loans and other borrowings are included under long-term debt.

These percentages reflect greater leniency on the part of the FHA, as the ceiling for total housing cost under conventional loans is at 26%-28%, while the cap for total monthly cost is at 33%-36%.

What are the advantages of an FHASecure Loan?

 If you qualify, FHA Secure Loans may save your home from foreclosure. And no prepayment penalties.