Navigating the home-buying journey with little to no credit history can seem daunting. However, FHA loans, insured by the Federal Housing Administration, can be a lifesaver for prospective homebuyers with such financial constraints. Their flexible financial prerequisites make them an excellent alternative for those dealing with debt or other personal finance challenges. The FHA loan program’s forgiving nature makes it easier to obtain than traditional loans, helping more people join the homeowner’s club. However, an easier application process doesn’t mean a less serious commitment; diligent preparation is crucial to sidestep common errors in home loan applications. If the appeal of less stringent requirements entices you, stick around as we delve into how to secure an FHA loan with low credit.

Understanding FHA Loan Eligibility and Requirements for Low Credit

The minimum credit score required for an FHA loan is 580, but there’s an exception: a credit score as low as 500 may still qualify, but with a higher down payment upon purchasing the home. Specifically, a down payment of 3.5% is needed if your credit score is 580 or above, while a 10% down payment is required for scores between 500 and 579. Additionally, mortgage insurance will be required for the entire duration of the loan if the down payment is less than 10%.

Securing an FHA loan with low credit requires meeting several criteria. These include the credit score and down payment requirements mentioned, a consistent employment history with documented income for at least two years, an income sufficient for the FHA loan amount, no bankruptcy or foreclosure in the past three years, and a primary residential home in livable condition.

Navigating FHA Loan Refinancing and Interest Rates with Lower Credit

The FHA Streamline program makes refinancing an FHA loan a reality for those with lower credit scores or debt. The program substitutes your current FHA loan with a new one offering better rates and terms. This refinance process usually requires less paperwork, has more lenient credit standards, and results in quicker closings. Even if your credit history has worsened, it shouldn’t hinder refinancing into a new FHA loan unless you have missed payments.

Your FHA loan interest rate will likely be higher if you have a lower credit score. However, as FHA loans are backed by the Department of Housing and Urban Development (HUD), lenders can often offer competitive rates compared to traditional mortgages.

Understanding FHA Closing Costs and Preparing for Application

Closing costs, charged by mortgage lenders and others involved in the loan process, typically range between 2% and 6% of the home’s sale price. In some cases, seller credits can cover these costs entirely. You’ll receive an estimate of the closing costs from the lender when applying for the mortgage and a final disclosure three days before the property ownership transfer.

When applying for an FHA loan with lower credit, documentation is critical. Gather all necessary information, including names of borrowers, current address, social security numbers, employment information, credit report, tax returns, bank account statements, and any other information requested by your lender.

Despite the challenges of low credit, securing an FHA loan is still possible with the right information and preparation. Schedule an appointment with us on our website and we can see if an FHA or other loan is right for you.

Real estate and home buyers needed some good news somewhere, and it finally arrived. While it’s true homes “with experience” are few and far between, new construction homes are rising like a phoenix out of the pandemic/high interest rate ashes.

Realtor’s Kimberly Dawn Neumann explains, “Many homebuyers might assume a brand-new house—with its pristine, gleaming countertops and flawless wood floors—must cost more than a preexisting property. And normally it does. The latest housing statistics place the median price of a new-construction home at $449,800—a steep premium compared with $375,700 for a property that’s been lived in already.”

But things have changed and this rule is no longer true across the board. High mortgage interest rates combined with severely constrained housing inventory have turned the tables in certain areas, presenting some surprising occasions where a new house can actually end up being cheaper than an old home.

A recent study by StorageCafe found that new construction costs less than a comparable preexisting home in 18 states. In California, a state plagued by housing shortages, homebuyers can save an average of $200,000 buying new construction, while buyers in Colorado, Utah, and around Washington, DC, can pocket around half that. Want to buy in paradise? Homebuyers in Hawaii are the very best off buying new, with preexisting homes costing nearly double new construction.

Now homebuyers who’ve always dreamed of owning a new home (as well as those who are simply fed up with bidding on preexisting properties) can get in on the American Dream. And even homebuyers who’ve never even considered new construction are now taking a second look — and ending up pleasantly surprised by the relatively modest price tag and fewer hassles that a new-home purchase entails.

Show me the money…

Part of the reason for this is that many new-home builders are able to offer some distinct financial advantages over resale homes — some obvious, and others not so much. Interest rate buy-downs and hefty buyer incentives can be had, but you have to know what to ask.

Builders like control over all aspects of their business. In order to encourage the purchase of newly constructed homes, many offer financial incentives to homebuyers who agree to use their preferred lender. In this way, the builder knows that once a home is completed and move-in ready, the deal will not be delayed owing to an outside lender holding up the process.

This is often extremely beneficial for homebuyers because they can get better terms than they would have otherwise. Must the homebuyer use the in-house lender? No. But incentives like a mortgage rate buy-down or money for design center upgrades will go away. These types of incentives are not attached to resale homes and builders know it. All they truly care about is making sure they can “move through the dirt,” get their homes built, and go on to the next subdivision without defaulting on their construction loans. New home salespeople, construction superintendents, design center managers, and loan officers all sit around a conference table once a week, checking the status progress of each house, and the status of each buyer’s loan knowing precisely what is going on.

Those in the know say to look for builders that purchased mortgage rate locks when interest rates were lower than they are today, and can therefore offer loans below current market rates to their buyers. While this is not a direct discount on the purchase price of the home, lower interest rates can save tens of thousands of dollars over the life of a loan.

Timing counts…

And then there is timing, which is everything when looking to buy new construction on a budget. Why? Because the best deals can be found very early—or late—in the game. Developers love a sure thing and often offer lower prices for homes that are “pre-sold” so they get a certain number of sales to secure financing for the rest of the project. The more tiny “sold” flags they can place on their topo(graphic) board in their sales office, the better it looks. Plus, builders generally raise prices for each phase of homes, so getting in early means their lowest prices.

Buying late offers a different kind of advantage and often can offer even more substantial savings, especially once builders near the end of their build-out. Because builders want to fold up their tents and silently steal away, the last few homes that are move-in ready (interior appointments were already chosen by the builder), they are eager to close the books on that community by offering additional incentives on the few remaining homes. While these “spec” homes can limit the home selections a buyer can make, the potential savings might make a spec home well worth it, and homeowners can always renovate later to their tastes.

Location of the community as well as the house within it…

New home neighborhoods are often in outlying but growing areas, and home sites (lots) have become smaller over the years. Larger, more well-located sites will come with “lot premiums.” Smaller ones or those that back up to streets get you a better deal. To determine if it’s worth it to opt for the quieter, larger lot with the better location, have your loan officer compare the monthly payments on them. You are the one who wakes up there in the morning, so there is much to consider, whether you plan on staying there long-term or not.

One thing to note in any real estate deal is that the smallest home on the smallest lot has somewhere to go when prices rise. The largest home on the biggest lot? Unless there are comparable-sized homes that sell for more money in the surrounding area, there is less room to appreciate in price when going to sell.

”Play money” comes with decisions…

There are a number of ways you can use a builder’s “play money” (incentives): at the design center or applied to your financing. If you think you can live a bit longer without fancy stone countertops or 8-burner cooktops, don’t use their money that way. Upgrades create hefty builder profits because the builder buys the materials at cost and then can charge a hefty premium for them. It’s wise to compare how much it would cost for a contractor to install the upgrades after the home is yours and compare prices. But remember that those upgrades will not be wrapped into your mortgage until enough time has passed for a refinance of your interest rate — which makes absolutely no sense until rates go down anyway.

The latest and greatest eco-features…

Neumann says that no matter what you pay for new construction upfront, it’s worth noting that most new-construction homes are equipped with many sustainable features, including energy-efficient windows, appliances, HVAC systems, and solar panels. In many areas these are part of the building code builders must abide by, but they can provide serious long-term savings through lower utility bills. And features like these can also pay off whenever you decide to sell your home.

One thing to remember? Even after the builder hands you the keys to your new home, you’ll experience “hole-in-the-pocket” syndrome for a while. Most new homes don’t come with finished backyards.

There are numerous benefits to being self-employed – you’re your own boss. However, when it comes to securing a mortgage, the process deviates slightly from traditional mortgages. It often involves additional requirements and more administrative procedures. Here are some tips to help you get organized and approved if you’re self-employed.

Apply for a mortgage when your income is high. We understand this is easier said than done, but lenders will focus most on your income from the last two years. If your income fluctuates, it’s best to apply in a high-income year. This strategy can help you qualify for a larger loan amount and a lower interest rate.

Lower your DTI. Your debt-to-income ratio is one of the critical factors in getting approved. Therefore, it’s beneficial to pay down both business and personal debts. Also, avoid opening new lines of credit a few months before applying.

Don’t mix business and personal finances. Keep your business and personal finances separate by maintaining distinct bank and credit card accounts for business and personal use. This separation helps lenders easily discern business income and expenses and demonstrates that you are managing your business professionally.

Please feel free to give us a call or contact us through our pre-qualification app, and we can determine which product best suits your needs. You may be a candidate for a Qualified Mortgage (QM) or a non-QM lender. Either way, we can review and help you get started!

We saw more activity in the market as rates dropped in a volatile business environment. Applications were up 7% and Freddie Mac reported the average rate on the average 30-year fixed mortgage was 6.60% this fell to 6.60% this week down from last weeks rate of 6.73%.

In statement by Freddie Mac’s Chief Economist Sam Khater, he said “turbulence in the financial markets is putting significant downward pressure on rates, which should benefit borrowers in the short-term.”
And he continued, “our research concludes that homebuyers can potentially save $600 to $1,200 annually by taking the time to shop among multiple lenders.”
Check with us about your options as the market is in a period of volatility. You can use our quick analysis our website and we will auto-schedule a review of your options.

With recent market volatility we have good news for some new home buyers. Starting in March, those who are receiving FHA financing and paying mortgage insurance will see the monthly fee reduced from 0.85% to 0.55%. This is expected to affect 850,000 borrowers this year and result in an average savings of $800 annually. The savings will vary based on the loan amount, for example a person with a $500,000 FHA loan would save $1,500 annually.
We are able to offer this savings on 2/27/23 – saving borrowers more money before the scheduled start date of March 20, 2023. If you are in the market for a new home, fill out our quick home qualifier on our website and we can help determine what loan best fits your needs and let you know how much you can pre-qualify for.

An adjustable rate mortgage (ARM) is a type of mortgage in which the interest rate can fluctuate over time. The key advantage of an ARM is that its initial interest rate is usually lower than that of a similar fixed-rate mortgage, making your monthly payments more affordable initially. Depending on the terms of the ARM, these lower payments can last for several years or even a decade. This makes it a good option for those who plan to stay in their home for a short period of time, and move before the ARM resets to a variable rate. As interest rates rise, payments will also increase. ARMs can also be beneficial if you anticipate a significant increase in income or assets in the future. When the ARM resets, you will be able to pay off the loan or refinance into another mortgage. Additionally, choosing an ARM can be a wise strategy when interest rates are on the rise, but haven’t reached their peak yet. This allows you to lock in a rate that protects you from further increases. By the time the ARM resets, interest rates may have dropped, making it possible to refinance into a lower fixed-rate mortgage.
Here are some general requirements (but these are guidelines and check with us for specific details)
For a conventional ARM the credit score will generally need to be at least 620 (FHA and VA may be lower). 
ARM DTI (Debt-to-Income ratio) generally can’t exceed 50%
ARM down payments are generally at least 5% on conventional loans and lower for FHA.
Schedule a free consultation with us on our website and we can review your specific situation to see what best fits your needs.

As we continue to see low inventory in the housing market and high rent prices, many home owners are adding ADUs (which stands for Accessory Dwelling Units).
ADUs often called granny flats, are guest houses or rooms added to garages to create rental income for home owners. Home owners typically add ADUs to increase cash flow, as well as looking for their property value to appreciate. Whether ADUs are right for you, depends on a number of factors. ADUs often costs at least $100,000 to build so being in a high rent market helps to offset the initial investment. You’ll also need to make sure local ordinances allow them and what the regulations are.
The old real estate adage about location stays true for ADUs as well. If you are in an area where rents are high or a popular vacation destination, then ADUs can make sense. Again you’ll need to check the local zoning and if you build one you will also need to have updated insurance to cover the ADU. Check with us to learn more and to see what financing terms you qualify for.

If you’re in the market for a new house, you’ve probably heard that you want to get pre… qualified or pre-approved?
What’s the difference anyways?
There’s actually a big difference. Pre-qualified is more of a preliminary step. It gives you a general idea of much home you can afford. We will examine your credit, income, assets, and debts and you’ll have a general idea of the price range you’re looking for. You may also see that you need to increase your savings or lower debts before you buy. While pre-qualifying is an initial step, pre-approval is a deeper dive and being pre-approved carries more weight with sellers.
To get pre-approved we will verify you income, assets, etc. and you will be more official (of course you still have to apply for a mortgage). Being pre-approved is almost a necessity in competitive housing markets, as realtors do not want to waste time and you will have a better chance of having your bid accepted. Now that we know the difference you may wonder what’s the point of getting pre-qualified – why not just get pre-approved? Good question – basically its much faster and it gives you a good starting point to start your home search. Pre-qualify or pre-approve we can help you with both – apply on our website or call us to get started.

If you were recently denied for a mortgage application, it doesn’t mean you can’t get approved somewhere else. There are some application issues that are fixable. The first thing you’ll want to know is why you were denied. We can take a look and shop for other loans options.
Credit issues are a common reason for getting denied. The first thing to do is to examine your credit report to see if there are any errors that can be fixed. There are also other loan programs if your score doesn’t fit conventional loans.
Debt to income ration or DTI that is too high is another common reason to be denied. The first thing if possible, would be to pay down debt. Another common source of debt is student loans – you may want to look into applying for the new student loan forgiveness program.
Simply being denied once does not mean the end of the road, we can consider multiple loan options. A co-signer is another option to consider, although this will make the application process less streamlined. Complete our quick qualifier and we can schedule a consultation to see what you can qualify for and for how much.

As the Federal Reserve has indicated lowering inflation is a top priority and raising short term interest rates as its primary tool to do this, we have seen mortgage markets react with higher rates (mortgage rates are not directly tied to the Fed rate, but they often move in the same direction).
The 30 year rate moved up to 5.89% this week accord B ing to Freddie Mac. While these rates are higher than pandemic lows, the still fall into the historic “normal” range.
While the Fed is taking a strong position against inflation, we are seeing market conditions improve in some areas. As Dawit Kebede, an economist for the Credit Union National Association noted recently, “there are signs that some of the main drivers of inflation are easing, such as lower oil and other commodity prices in July, slower wage growth, and declining supply chain pressures.”
There is also a renewed interest in ARM loans with the 5/1 ARM at an average of 4.52% last week.
Every loan scenario is unique so fill out our loan analyzer on our website and we can see what program is a good fit for you!