There is still one mortgage program that allows you to refinance without having to verify your credit scores. 

 Yes, you can have a credit score in the 500′s, or even lower, and still get approved for a mortgage refinance.

The only program that allows this approval is called a FHA Streamline Refinance.

What is a FHA streamline refinance?

It’s similar to a regular mortgage refinance, but your current mortgage loan that is being paid off has to a FHA loan as well.  So, you are basically going from an existing FHA mortgage loan to a new FHA mortgage loan.

Now, a streamline does not allow you to take any additional cashout.  The purpose of the streamline refinance is to lower your existing interest rate, if available at that time.

What are the benefits of doing an FHA stramline refinance?

The most popular reasons why someone would qualify for a streamline versus any other mortgage loan are the following:

• No credit score verification is necessary.
• No income verification is necessary.
• No asset verification is necessary.
• No home appraisal is necessary.

This program has become extremely popular for these types of people:

• If your homes value has depreciated to the point where you owe more on your mortgage than the home is worth.
• Self employed person.  It’s always difficult to verify income for these people.
• People with low credit scores.  As long as you are current on your mortgage.

The FHA streamline refinance will continue to be one of the most popular mortgage refinance programs on the market.  The mortgage rates continue to be at historic lows,  so anyone currently in a FHA mortgage loan will benefit from refinancing into these lower interest rates.

If you would like a second, or even a third, opinion on the refinance you are looking to do, please don’t hesitate to contact me.  On the top of this site, you can check out the list of states I’m able to help someone with financing.

I specialize in bad credit mortgage loans and I do all I can to talk about how less than perfect credit can still get you a mortgage loan approval.

Government programs are in full force nowadays and they do not have a minimum credit score to qualify.

I encourage you to leave a comment with your feedback or questions.

Here are the three options you have when looking for a true no down payment mortgage loan. I’ve also laid out some details of each program, so you can get an idea of what they are all about.

1. VA (Veterans Affairs) Mortgage Loan - Whether you or your spouse are currently in active duty or a military veteran, you can be eligible to obtain a VA mortgage loan. No down payment is required with this loan program. A VA loan has many benefits for military personal, that is should be taken advantage of. Here are the list of benefits that come with a VA mortgage loan…

- No down payment.
- Less of a PMI (private mortgage payment) payment.
- Favorable and secure 30 year fixed interest rates.
- No minimum credit score to qualify. Even if you have bad credit, a VA loan is approved based on your ability to show you can afford the mortgage payments.

You have two ways to be approved:

1. Approval through an automated underwriting engine.
2. A manual underwrite. Sometimes, the automated engine doesn’t approve your application, but that’s OK. It still allows your application to be underwritten manually by an underwriter. Basically, if you can show ability to pay the mortgage with good employment history, you will most likely be approved.

You may be able to obtain a VA loan multiple times. A form called the, Certificate of Eligibility, is required when applying for a VA loan and this determines whether or not you have enough “eligibility” left to qualify for another VA loan. Sometimes, a borrower doesn’t use all of his/her eligibility, which can be used again for a future purchase on a new home.

2. Rural Housing Mortgage Loan - If you find a home in a rural area and your adjusted annual gross income doesn’t exceed the moderate income limits for the area, you can qualify for a rural housing mortgage loan. No down payment is required with this loan program. A rural mortgage loan has many benefits for a borrower that is looking to purchase a home in a rural area. Here are the list of benefits that come with a rural mortgage loan…

- No down payment.
- No PMI. (private mortgage insurance)
- Favorable and secure 30 year fixed interest rates.
- Seller can pay up to 6% of the purchase price, to the buyer, for closing costs and prepaids. This allows the buyer to truly not have to bring money to closing, since there is no down payment.

You may finance up to 102% of the appraised value or purchase price, whichever is lower. The 2% is meant to finance the closing costs and prepaid items like the escrow account, so you truly do not have to bring money to closing.

3. FHA Mortgage Loan With A Down Payment Assistance Program - If the seller agrees to participate in a down payment assistance program, the buyer can use these funds towards his 3% down payment when applying for a FHA loan. This is how you can truly do a no down payment FHA mortgage loan. A down payment assistance program allows the seller to gift 3% of the purchase price to a 3rd party service, which in turn the buyer can use the 3rd party service and it’s funds for the down payment. Here are the list of benefits that come with a FHA loan…

- No down payment, when using a down payment assistance program.
- Less of a PMI (private mortgage insurance) payment.
- Favorable and secure 30 year fixed interest rates.
- No minimum credit score to qualify. Even if you have bad credit, a FHA loan is approved based on your ability to show you can afford the mortgage payments.

You have two ways to be approved:

1. Approval through an automated underwriting engine.
2. A manual underwrite. Sometimes, the automated engine doesn’t approve your application, but that’s OK. It still allows your application to be underwritten manually by an underwriter. Basically, if you can show ability to pay the mortgage with good employment history, you will most likely be approved.

These are the only 3 options that are available in this current lending environment. Fortunately, there are no down payment options available and I’m glad to say I specialize in working with first time home buyers to help them obtain these types of mortgage programs.

If you are not that familiar with FHA or VA mortgage loans, well, they allow approvals with borrowers that have bad credit. Now, the key to getting an approval with bad credit on a FHA loan are compensating factors. Some of the most powerful compensating factors are listed below.

So, if you are looking to buy a home or refinance your current mortgage and believe you have bad credit, consider these compensating factors that help in getting you approved.

1. The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense over the last 12-24 months.

2. The borrower makes a large down payment (ten percent or more) toward the purchase of the property.

3. The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit.

4. Previous credit history shows that the borrower has the ability to devote a great portion of income to housing expenses.

5. The borrower receives documented compensation or income not reflected in the effective income, but directly affecting the ability to pay the mortgage.

6. There is only a minimal increase in the borrower’s housing expense.

7. The borrower has substantial documented cash reserves.

8. The borrower has substantial non-taxable income.

9. The borrower has a potential for increased earnings, as indicated by job training or education in the Borrower’s profession.

10. The home is being purchased as a result of relocation of the primary wage earner, and the secondary wage earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area.

If you feel you don’t fully understand one or more of these factors, please feel free to contact me, jbucio@hmcdirect.com, and I will help you with explanation.

Did you know that FHA will allow the lender to deduct the monthly alimony payment from the borrower’s gross monthly income when calculating ratios??

What does this mean???

Because of the tax consequences of alimony payments, FHA guidelines permit the lender to deduct the monthly alimony payment from the borrower’s gross monthly income before calculating ratios, rather than including the alimony payment with other monthly liabilities.

This can make a huge difference in qualifying ratios. With the higher loan limits available in many areas today, borrowers who owe monthly alimony payments, who will not qualify for a Conventional loan, may now be switched to an FHA loan.

Example:

A borrower is making $5000 in gross monthly income. The total PITI mortgage payment, combined with consumer debts, plus $800 in monthly alimony, totals $2300

$2300 total debt/$5000 gross monthly income = 46% debt to income ratio.

If the borrower switches to an FHA loan, here is how it will be handled:

$5000 gross monthly income minus $800 alimony payment = $4200 net income.
$2300 total monthly debts minus $800 alimony payment = $1500 monthly debts.

$1500 monthly debts/$4200 net income = 35.71% debt to income percentage!

The debt to income ratio was reduced by 10% using the FHA formula For borrowers with monthly alimony payments!!!

If you know someone making alimony payments, I advice them to consider a FHA mortgage loan when looking for mortgage financing.

If you don’t know by now, MGIC, and other 3rd party private mortgage insurance (PMI) companies are only insuring up to 97%. What this means to you, is that now you have to put a minimum of 3% as a down payment. No matter how good your credit score or how much in liquid assets you can prove, it’s just a new guideline they have put in place.

So, how do you still do a no down payment, 100% financing, on your purchase or refinance in Wisconsin? Here are the 2 ways that are simple and most people have no idea they can do this.

1. Have the seller pay for your down payment! If you are looking to buy a home and have little to no money for a down payment, ask the seller to pay for the down payment. If you are working with a realtor, explain to him/her that you want to write in your offer to purchase that the seller pays for your 3% down payment. Are you wondering what loan program allows this? Wisconsin FHA loans allow the seller to contribute to the buyer’s down payment.

Also, if you have the opportunity, have the seller pay for your closing costs. Think about it, you are in a buyer’s market and sellers that have been trying to sell their home all winter and are just itching to get rid of it. If I were selling my home, and the only thing that stands between selling my home or not, is paying for 3%of the buyers small down payment…where do I sign!

2. You can have a relative gift you the down payment. These lenders are only requiring that the relative that is gifting you the funds, fill out a gift letter form and show proof the money came from them. Simple. For some reason, I run into many people that didn’t know their, rich uncle or grandparents, can gift them the small 3% for a down payment.

Learn more about no down payment mortgage loans for first time home buyers.

A recent article, I have copied below, talks about a bill that should reach President Bush soon. Hopefully, it will allow people looking to buy homes with no money down to qualify for an FHA loan still.

Currently, people need 3% as a down payment for FHA loans. If this bill passes, and it’s looking better than ever, it could help tremendously with those having a hard time getting financing for a new home or trouble refinance their existing loan.

Here is the link: Subprime alternative: FHA reform deal close

1. Wholesale Interest Rates

Let’s use Countrywide as an example. Countrywide gives a mortgage broker, like myself, access to wholesale interest rates as another avenue of revenue for themselves. Most times I will be able to offer 0.25% or better on an interest rate compared to you walking into the front door of Countrywide’s building. Think about it this way, Countrywide does not have to spend money on marketing and taking the time to generate your business. They just hand over the rates and let us bring in the customers, then in turn, we sell the loan directly to them.

We all have heard of our mortgage loan being sold after it closes. It makes no difference using a mortgage broker that works directly in correspondence with a lender you were going to use in the first place. Wait, there is a difference…WHOLESALE INTEREST RATES!

2. Service

Ahhh, the magic “S” word that so many companies claim is their #1 priority. Yes, mortgage brokers are paid a commission, but it’s basically for your benefit as a customer. A commission or bonus based employee will always be more focused on getting the job done. The same thing goes for a company that offers their employees a bonus for meeting monthly goals. It’s an incentive to work harder and smarter! Some may look at is as an unfortunate thing that we have to place bonuses and commissions to motivate the employees, but heck, it works! Wouldn’t you focus harder on getting that project done at work, if you know you were getting extra money if completed in a certain timeline? Most people would!

Service is very important to a mortgage broker. You build this connection that he/she can be trusted, since they may be contacting you on the weekend or later at night, since it is the best time for you to talk. This happens a lot when dealing with families. The average person gets off of work at 4 or 5pm and then has to deal with the children and things at home. It’s almost 6 or 7pm before they have time to sit down and talk about their mortgage situation. Do you know of a loan officer at a local bank that services you at 7pm?!

3. Multiple Lenders To Work With

Mortgage brokers have access to multiple lenders for the customers benefit. Here are two reasons this can be beneficial:

a. When interest rates are available in the morning, the broker will have access to multiple banks interest rates. On any given day, one banks rates may be better than the others. The next day it may be a different bank with the best rates. The point is, having multiple banks to work with can benefit in looking for the best interest rates that day.

b. If a borrower has a unique situation, like a self-employed customer doesn’t claim enough on his/her taxes to qualify for the loan, I can look at different banks that allows the borrower to state his/her income on the loan application. Unlike a local bank, they either can or cannot do this. No other option for the customer.

Access to multiple lenders gives the customer multiple options, especially if someone has a unique situation like employment, credit, or income.
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It’s very simple to refinance your FHA loan into a lower interest rate.

It seems with this whole credit crisis lately, people are afraid if they have “bad” credit they cannot be approved for a mortgage loan. Especially, the current home owners who are in an adjustable rate mortgage and their payment is about to increase.

In a nutshell, the FHA (Federal Housing Administration) loan is insured by the federal government for the purpose of helping lower income and less than perfect credit borrowers qualify for a mortgage loan. It is most known to help first time home buyers that have little to no money down when buying a home. Also, many people don’t realize that even someone with a middle 500 credit scores can be approved!

Here is a government website link.

Below I’ve listed the benefits an FHA loan has for the first time home buyer and the existing home owner trying to refinance:

FHA Benefits For First Time Home Buyer & Existing Home Owners That Want to Refinance:

• Little or no money down for the down payment.
• You don’t need much credit history. Example: a college student that doesn’t have bad credit, but just minimal credit history.
• There is no minimum credit score to qualify.
• Low interest rates that can compare to regular rates people get with good credit!
• Lower PMI (private mortgage insurance) than your standard mortgage insurance someone would pay with less than 20% as a down payment.
• If you wanted to buy a home and use the equity to remodel the home right away, an FHA loan is also the best option for that.

So, if you know someone having trouble financing their first mortgage or refinancing their existing mortgage, have them contact me. Keep in mind not all banks and mortgage companies are licensed to do FHA loans. This may be the reason another company couldn’t help out.