As conventional loans are getting tougher to approve with less credit available in the market and stricter lending guidelines it is important you are aware of FHA lending and its capabilities. In order to get the best interest rate available for a conventional loan a borrower will need to put down 20%. With a 20% down payment any borrower will be avoiding adding an additional second mortgage at a higher interest rate as well as increasing the interest rate on their first mortgage by increasing their loan to value (purchase price). On the other hand, FHA financing requires only a 3% down payment and currently government loans are offering better interest rates than a conventional loan with a 20% down payment! This does not mean an FHA borrower is limited to a 3% down payment; they can put down a greater amount as long as they do not exceed 20% of the purchase price.
There are additional conventional loan programs which will allow one loan up to 95% of the purchase price. These loan programs are also inferior to FHA lending due to the greater cost of mortgage insurance, sometimes 2/3 greater, or if mortgage insurance is not included in the loan you can guarantee a greater interest rate will make up for the lack of mortgage insurance.
If you are not currently marketing to or working with FHA buyers you need to be aware of the following statistics:
• Mortgage Bankers Association says applications for government-insured loans were up 133.9 percent in July from a year ago.
• Applications for conventional loans like those purchased and guaranteed by Fannie Mae and Freddie Mac fell 50.2 percent in July from one year ago.
This means you could be possibly be missing out on a great amount of buyers currently seeking to purchase a home. So, what are some good ideas on ways to market to FHA buyers?
Marketing Ideas
• Bankruptcy & Foreclosures: FHA will approve a purchase of a home for any buyer with a bankruptcy discharged more than 2 years old. If a buyer went through a foreclosure they will need to be 3 years removed from the foreclosure in order to be approved through FHA. Conventional lending will require both bankruptcy and foreclosure clients to wait 5 years to purchase a home. Market to these clients by informing them of the availability of FHA and share with them these useful underwriting guidelines. Call your local Title Company Rep and ask them to send you a list of clients with a bankruptcy older than 2 years and a foreclosure older than 3 years. By sharing the option of purchasing a home with only a 3% down payment being less than 5 years removed from this event should give you a heads up on your competition.
• Bank Owned Properties that Need Repair: Here is a chance for you to show your buyer’s what lending options are available to them through an FHA 203k loan. The 203k loan will allow for repair costs to be built into the purchase of the home in order for your clients to make significant improvements to the property. This is also a great marketing piece if you are listing distressed properties that need repairs in order to bring them up to living standards. If you would like more information about the 203k loan program please give me a call and I would be happy to explain them in greater detail. Waterstone Mortgage is one of only a few lenders in the state of Colorado who is approved and has the experience to provide this loan program.
• First-Time Home Buyers: Right now is a great time for first-time homebuyers to enter the market. Property values have decreased which increases the probability they can find a great home well within their price range. With FHA only requiring a 3% down payment this affords them a great opportunity to be approved for a loan with a minimal down payment while the rest of the lending market requires a greater down payment and tougher lending guidelines. Apartments are a great idea for marketing material. Most apartment complexes already require a credit approval as well as an income (debt to income ratio) approval.
If you would like to discuss these ideas and try to come up with some other ideas please give me a call!
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