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Lets talk about FHA….. The many Myths and misconceptions about FHA.

Heather Paige Moody

   Today we will go over FHA and some misconceptions. When you are getting ready to buy a home, everyone wants to give you advice. One type of loan that people always spread misconceptions about is FHA.

FHA loans are harder to qualify for–

That would be False… FHA loans are actually less restrictive, so many people qualify somewhat easily. This gives borrowers with lower credit scores and/or limited down payments funds an opportunity to purchase homes.

All FHA-approved lenders offer the same loan terms.

False- Not every FHA-insured loan package is the same, meaning you should shop around for the best offer.

You must have a 620 credit score to qualify for FHA.

That is what you call and overlay and not a guideline…

Per FHA The lowest credit score for an FHA mortgage loan is 500, the FHA will insure mortgage with a 10% down payment (90% loan-to-value ratio). If a borrower has a minimum 580 credit score then the FHA will insure the mortgage with just a 3.5% down payment. Now keep in mind, that credit score is not the full piece to the puzzle. With lower credit scores you must meet the manual UW conditions or have an approved eligible through the automated UW system. More information on this can be found
FHA guidelines

Your debt to income CANNOT go over 31/43…

Again , there are always exceptions to the rule… depending on the over all file. Credit, compensating factors and automated approval. Automated approvals can approve up to 56.99 and manual UW up to 50% DTI.

FHA loans are really for first time homebuyers.

Lets go with no… FHA are great for first time home buyers with lower credit scores or a bankruptcy in their past, and others who are having a hard time qualifying for a conventional loan. FHA loans can also be used by disaster victims. The 203H is a great program that provides 100% financing through approved lenders for the reconstruction or purchase of homes after they were severely damaged in a disaster. It can also be used to purchase a new home if your home was destroyed.

You can only be on a FHA loan if you will live in the home… Ummmm nope!

FHA will allow a non occupant co-borrower to be on the loan with the primary borrower that will be occupying the residents. This can help with limited credit borrowers or debt to income issues.

Down Payment must come from your personal funds…

If you are a manual UW or require reserves, that must be from your personal funds, but as far as the down payment there are options. We are so quick to think when we hear “down payment”.. we don’t have that amount in our checking/savings account. Here are a few options you have with FHA for your down payment.

  •  Earnest money deposit
  • Savings bonds
  •  IRAs
  •  401(k) and Keogh accounts
  •  Stocks and Bonds
  •  Thrift Savings Plans
  •  Savings and checking accounts
  •  Cash saved at home
  •  Cash accumulated with private savings club
  • Gift Funds See HUD 4155.1 5.B.4
  • Sales proceeds
  • Sale of personal property
  •   Collateralized loans
  •  Grants and loans
  •  Employer’s Guarantee Plans
  •  Employer Assistance Plans

    I am sure I could go on all day with guideline vs overlays. But since time and space will not allow for that ,  you can always send me a message if you have any other questions about FHA. You can always refer to the FHA HUD handbook for guidelines at FHA Guidelines

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Published by Heather Paige Moody

Welcome! I'm Heather ( AKA: Paige) Moody . A Little About me: I was born and raised in a small town in Eunice, Louisiana where I started my first mortgage company in 2005 at the age of 21 years old. Since 2005 I’ve grown to know everything when it comes to the industry, from owning a mortgage company, processing loans, mortgage underwriting rules, to now managing. Why I’m in the Mortgage Business: My family has a history of Banking and real estate . I could see at an early age how satisfying the real estate profession was for them, so I started off as a Real Estate agent and quickly realized that the mortgage side was my passion. I am a mother of 4 very active kids that have been/ are being raised in the Real Estate /mortgage world. I have always said that their first baby blanket was a file folder. I love to be able to teach that going the extra mile for others is such a blessing to us as well as the other person. Most importantly that no matter what the obstacle is that we must work hard and give it our all in all that we do. Our family lives at a field or a gym for most of the year. Between baseball, cheer, volleyball, football and anything they can possibly sing up for, I have developed little-known disease called Bleacher Butt. When I am not working ( or should I say.. not behind my desk) or attending an event for one of the kids . I really enjoy bible studies , reading and listening to podcast. My children go to 2 different schools and I am so blessed to be part of two Mom’s in Prayer groups. It is a National Organization that Moms can get together to pray for our children and our school. As the Southern Mortgage Mom, I help homebuyers and Real Estate Agents make the Mortgage buying process as stress free as possible. I have been called the miracle worker by clients and agents( on occasion) because I have saved some mortgage loans that others have denied . It has nothing to do with miracles , but all to do with knowing how to get a loan approved. If I am lucky enough that you chose me or my team as your go to lender, I promise that I will be fair, I will be honest and you will feel like family when you sign the final papers and I will keep in touch (till you tell me not to) long after the mortgage loan is closed. Looking forward to working with you when it comes time to buy a home or refinance your current mortgage.

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