This is a question almost every customer I ever had over my 30 yrs as a loan officer has asked at some point and time. Frankly, it is not an easy question to answer and I have never approached this question lightly. It is disappointing to me when "mortgage professionals" answer this loan based on what products they have available and not on what might be best for the consumer.
Here is an example, not every lender is FHA or VA approved. Why, well there are a number of factors but the main reason has to do with net worth of the lender. Other factors could be personnel, background of the owners, or lending area. If the FHA loan limits aren't high enough for the median priced home in your area then FHA loans are hard to do. VA loans allow the Fannie/Freddie loan limits so they are available even in high cost areas. Again, the lender has certain financial requirements, personnel, and of course solid backgrounds to be approved VA.
In a tightening credit environment FHA and VA are proven programs that will allow for more potential homeowners to qualify than standard Fannie Mae and Freddie Mac programs. With tightening credit criteria for Mortgage Insurance, absolutely required with less than 20% down, FHA and VA should possibly be the first choice instead of the second, third, or not offered whatsoever. I could go on and on about the merits of FHA and VA loans compared to Conventional Conforming loans but just think about this...FHA requires 3.5% down payment, VA requires ZERO....Conforming Conventional minimum down payment if you can get MI is 5%. Here is another point, overall debt ratio for FHA and VA is 41%, in energy efficient homes it climbs to 43%. Conforming Conventional is overall debt ratio is 36%, energy efficient homes its climbs to 38%. Think about this as well, if you customer has the average credit score of 692, Conforming Conventional Loans have FICO adjusters, FHA and VA does not.
Conventional wisdom is property requirements are tougher FHA and VA, that is not completely true. Fannie Mae and Freddie Mac require Health and Safety issues to be corrected prior to closing, the same as FHA and VA. However, if you are in a declining market you can't do Maximum Conforming Financing but you can with FHA and VA. Property standards are such that if your client is buying a foreclosure that has been gutted, needs major work, then none of these loan programs will work. Most properties will qualify FHA and VA....if your lender is not offering you should be asking yourself why....the truth might surprise you. To do the best job for your clients a Mortgage Banker who offers Conforming Conventional along with FHA and VA will provide you and your client the best opportunity for success.
HAVE A GREAT DAY!!!!!
Kevin M. Breeland
General Manager
Residential Mortgage of South Carolina, LLC
427 Johnnie Dodds Rd.
Mount Pleasant, SC 29464
www.residentialscdailyrates.com
Competitive by nature...the Best by choice!
As Sr. VP Government Affairs I am based in Charleston, SC.
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