I'm still just not getting it about FHA loans

[rcarrillo]

Originally Posted by sh9730

rcarillo,

I think somehow you misinterpreted the OPs comment about FHA underwriting....when putting it in context of the other posts, I believe they are just asking how a lender would know that it is FHA loan vs. conventional....least thats the way I read it!

Sounds like the OP is very limited in their knowledge (so far!) of the loan/homebuying process and is just trying to educate themselves....I got NO indication of any fraudulent intent!

Edit - Cancel last! I just saw that the underwriter question was not from the OP! Sorry - still I dont neccessarrilly see fraud here.....just a simple question as to how a new lender would know what kind of loan they had.

The person stated they have an FHA loan. They say its not showing on their credit report. They are worried the underwriter will find out and "kill the deal".

They are asking if there is a chance of this or not. Sounds like they know that they have an FHA loan and can not qualify for another one.... but are hoping to get by without it being caught.


If not, I apologize. But they can ask questions such as "can I get another FHA loan if I already have one" or "would this be an issue".

[JustJulia]

Originally Posted by sushi66

When I asked here before, it didn't sound like anything was "wrong" with an FHA loan... some brokers can't do them because they don't qualify to arrange them... But I'm looking at homes for sale and some of the listings wording is "We'll *even* take VA and FHA loans!" and my real estate agent the other day said, "Well I mean, if you were getting an FHA loan" like it was a bad thing.

What's the deal?

My impression is that a lot of lenders didn't want to do FHA loans because they didn't make a lot of money. There's a lot of paperwork and requirements to meet, and the interest rates are relatively low. A couple of years ago, before the housing bubble burst, my husband and I were looking into FHA loans because our credit scores weren't great (recent stuff was fine, but old debt from several years ago made a big mess). We lived in California at the time, and even the "cheap" houses in our area were $500K. We really wanted to stay there because our families were nearby, but 20% down on a conventional loan? No way. FHA loans allow 3% to 5% down, which was more our speed. But I had to call around to a bunch of lenders to find anyone who would even DO an FHA loan. The subprime market was still in swing, but we wanted a conventional 30-year loan. No ARMs, none of that interest-only nonsense.

Because people who aren't so bright and shiny can qualify for FHA loans, I think some people associate them with subprime loans. Like you're section 8 or something, you know? Hence the condescending, "We'll EVEN allow FHA!" But I don't care. We got the loan, we got our first house, and we couldn't be happier.

[rcarrillo]

Just Julia- I don't think it was the money, but more the paperwork and lack of experience. FHA is priced very well for the rates given... and as you said usually far lower in rate than sub-prime for the same borrower.

The problem is anyone with a brokers license or at a bank could do a sub-prime loan. But you needed to pass a lot of extra regulations and audits (which cost plenty of time and money) to be approved by HUD for FHA loans. Many companies did not have the time/resources to do it, others just did not want to when they could get "easy" 100% financing from the tons of non-conforming lenders out there.

It also does require a few extra pieces of paper and a little more experience. There were many loan officers who had no clue how to put together a loan package or pre-qualify a borrower. Sub-prime lenders made it easy, all the loan officers had to be were sales people and order takers. You filled out an application, collected a few documents and called or emailed your account representative. These people were also paid big commissions to clean up the messy applications and push the underwriter to approve it. Some did bend or break rules, but for many it was just easier as all the loan officer had to focus on was selling the borrower. They did not know the first thing about economics, finance or the pros/cons of what they were selling.

For an FHA loan, the application is longer with more details required. The account executives and underwriters usually expect the loan officers and processors to know more and will not take some of the junk, incorrect application that account executives at non-conforming lenders would accept for a submission. FHA also required fully documenting income and assets so there was more analysis needed, and fewer people qualified.

FHA also had fewer fancy options like I/O, although they do have adjustable rate options. Still, for loan officers that sold on PAYMENT, the Option ARM or I/O ARMs were an easier sell than a fully amortizing 30 year fixed loan.

I bought my home with an FHA loan back in 2000. That might be why when I started in the mortgage business in 2002, the first thing I learned was FHA loans. It allowed me to buy with 3% down even though I had limited income because I had good credit, reserves and shown a history of paying a rent that was equal to the mortgage payment. Conventional loans were asking for 5% down, qualifying me for ~$10,000 less.... and the rate was still higher than on FHA.

FHA is a great program for those that fit its niche. It is not just for bad credit or low income borrowers. Anyone with <10% down or >740 credit should consider FHA. The higher your credit and down payment the less sense it makes, but is worth comparing just in case.

[JustJulia]

Thanks, RCarrillo. I'd rep you again, but it won't let me because I did in the other thread, too.

Not being able to find an FHA lender in California worked out for the best. My husband and I believe that when there are a lot of obstacles in front of what you want, maybe you should think twice. The housing market started to slump, and we found a horrible little condo in our town that we could qualify for, but it was an REO and had mold and roaches and needed repairs. The bank's attitude, of course, was "take it or leave it." We drug our feet and just weren't "feeling it," and eventually we abandoned the idea of being able to live where we were renting.

Then my husband was offered a promotion in Illinois, outside Chicago. I couldn't imagine moving so far away, but we could afford a real house there, and everything else just sort of fell into place.