Q: "My spouse and I want to take advantage of low interest rates and refinance our home. We were turned down by one lender because our credit rating is only in the mid-600s. But we heard the government can help out with home loans for people with not-so-great credit. Is that true?" – C.J.M., Sacramento, Calif.
A: You’re probably referring to the Federal Housing Administration (FHA), and its low-cost home loan programs.
While most banks have pulled back their home loan activity, FHA home loans are relatively booming. According to the FHA, such loans tripled in 2008, and grew significantly in 2009 and 2010.
Borrowers are drawn to FHA loans for the same reasons you are: They’re cheaper, easier to obtain than loans from big banks, and usually offer lower fees and lower closing costs.
So, how can you get an FHA loan? Let’s take a look:
To get an FHA loan, visit the agency’s website. Spend an hour or two reading the key reports and “how to” articles on finding a good FHA mortgage.
The criteria for getting an FHA loan have changed in recent months, so make it a priority to read that, too. Basically, FHA borrowers must have a minimum credit score of 580 to qualify for the FHA’s most favorable down payment plan, which, right now, ranges around 3.5%. The cost for up-front mortgage insurance has also changed. Unlike most FHA fees, this one has gone up to 2.25%, the agency says.
Before you complete a loan application, know what the FHA is looking for. Like most lenders, you’ll need to have your key financial documents and personal financial information included. You’ll need the following information:
• Address of your place of residence (past two years)
• Social Security number
• Names and locations of your employers (past two years)
• Gross monthly salary at your current job(s)
• Pertinent information for all checking and savings accounts
• Pertinent information for all open loans
• Complete information for other real estate you own
• Approximate value of all personal property
• Certificate of Eligibility and DD-214 (for veterans only)
• Current check stubs and your W-2 forms (past two years)
• Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals
Additionally, the FHA says you’ll need to pay for a credit report and appraisal of the property.
Your best bet is spend some time on the FHA’s refinancing web page. From the research we pulled, it looks like you’d be a good candidate.
Good luck, and get started now, while interest rates are at these historic lows.
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