Like with every loan program there is, there are certain rules and regulations that govern the disbursement and repayment of Pembroke Pines FHA loans. Some people find the rules confusing while some future borrowers have no idea at all on how they work.
Interest Rules for FHA Home Loans
In particular, we will cover identity of interest rules, which are specifically meant for borrowers that have a business or family relationship with the seller. Normally, the borrower is expected to make a 15% down payment. Unfortunately, most people are confused in regard to who this applies to.
Seller is a business associate or a family member
Because identity of interest transactions need a larger down payment, borrowers naturally want to find out if there are exceptions and how to make them work for their benefit.
According to the U.S Department of Housing and Urban Development, a borrower can exceed the stipulated 85% LTV if they are purchasing a home for their primary residence or the primary residence of another family member. The other exception is if a property that is owned by another family member in which the borrower has resided in as a tenant for a period not less than 6 months.
In the instances mentioned above, the identity of interest 15% down payment is not required, that is, if the borrower is purchasing the seller’s principal address as their own principal address.
Landlords selling the house to tenants need to provide the lender with the necessary documentation in order for the lender to make exemptions in such cases.
For such buying scenarios, borrowers are expected to adhere to the FHA occupancy rules. At least one of the borrowers should occupy the home and live there as their primary residence. This is usually within 2 months of the closing date.
HUD allows the lender to provide an exception to the 15% down payment rule in several other specific circumstances. We have outlined them below. Or you can click here and read how to fix common FHA Loan issues that may arise.
Builder’s Employee Purchase
If the employee of a builder that is not a family member buys one of the builder’s new models or houses to live there as a principal residence, the 85% LTV restriction can be exceeded.
If a company transfers one of their employees to a different location and purchases the employee’s house and then sell it to another employee, the 85% LTV restriction can be exceeded.
If the current tenant buys the property that they have been renting for the last 6 months that predate the sales contract, the LTV restriction of 85% can be exceeded.
State laws, lender standards, as well as other ordinances, may apply above and beyond FHA loan rules that have been mentioned above.
Depending on market conditions, some lenders might be resistant to certain transactions or home loans.
You can get in touch with Nationwide Home Loans to find out what our policy is for Pembroke Pines FHA loans.
Now that you are well informed on how identity of interest works, let’s recap on how credit scores affect a home loan.
Some time back the minimum required credit score fell to 500 points. Here’s how that compares to other loan programs.
- VA home loans have no minimum credit score requirement
- Conforming loans require a minimum credit score of 620
- USDA loans have a FICO requirement of 640 points
There are some programs that will make exceptions in certain circumstances for instance, if the borrower is a victim of identity theft.
USDA programs require that the borrower meet their income requirements and that they buy property in a rural area.
Most Fannie Mae and Freddie Mac programs require that the borrower have lower debt-to-income ratios or that the borrower makes a large down payment.
FHA Credit Score requirements
FHA home loans are easier to get now more than ever.
With a FICO score of 580 most lenders are likely to approve borrower applications. In addition, most homebuyers are likely to choose an FHA-backed home loan compared to other types of loan programs due to the lenient down payment requirements.
With an FHA home loan the minimum down payment is 3.5%. In addition, underwriting requirements for the FHA home loan are more forgiving and flexible.
When applying for an FHA home loan you need to be aware that there are two different minimum credit score requirements contingent upon the down payment made.
If the borrower has a credit score of 580 the minimum down payment they can make on a home is 3.5% of the home’s purchase value. However, if the borrower’s credit score is 500, they should be prepared to make a minimum 10% down payment on the home’s purchase value.
One of the reasons applicants might have low credit scores is because they have bad credit, though this is not always the case. If you have a low credit score due to bad credit, you are not eligible for an FHA loan.