The Most Common Reason Mortgages Get Declined

When it comes to FHA loans,
there's one component that a lot of people just miss out on and
they're, what's called Overlays. Okay. And Overlay is this, for example, FHA truly
does not have a minimum credit score. I'll retract. That FHA has a minimum credit score and
it starts at 500, but I challenge you to call a hundred lenders over the weekend
and see if anybody will do a loan if you have a 550 credit score, you'll
probably find zero out of a hundred.

Normally the two basic things
you need to qualify for FHA is you want a credit score. I think it ranges. So there's different investors
with different companies. So some minimums might be different in
different brokerages or banks or whatever. But it can be as low as 580 to like
mid six hundred, I would say 640. However, in my experience,
most lenders relatively take 600 as their minimum score. So that in essence is an overlay. Another overlay is what we
call a Reference Debt Ratio. Okay. A debt ratio is your monthly expenses,
divided by your monthly income. Some companies will only allow
you to go to 50%, FHA allow you to go all the way to 57%. What I'm trying to get at here is if you
call a lender after you see this video, and you're like Dan said, I should be
able to qualify with this score in the debt ratio, but if you call somebody
and get denied, it's because they have overlays.

We have one overlay and one
overlay only, and it's your credit score. The minimum credit score that we will
accept at this time is 580, and that is still among the country's lowest
credit score out in the market. You're gonna find most lenders are at 620. Okay. So that's what we reference overlays. So now let's get into the guts
or the nitty gritty of FHA and the requirements for an FHA loan. First off is credit scores. Like I said, FHA, all you need
is a 500 credit score to qualify. We require that you have a 580 or higher
most lenders right now are at 600 to 620. So those are the credit score
requirements that are needed. The next thing is the Loan to Value. Now this is standard all over the
country when you're buying a property. You only need three and
a half percent down. So the loan to value is basically
your loan amount divided by the value of the property. Okay. So if you're getting a loan to
value of 96.5%, that means you only need three and a half percent down. Okay. So that's if you're purchasing a home and
it's not only for first-time home buyers, anytime you're doing an FHA purchase, you
only need three and a half percent down.

So now if you're looking to
refinance, there's a couple different variations there. If you have an FHA loan right
now, and you're looking to refinance it, it's pretty simple. It's called an FHA streamline. We just need to validate that you've
made your last six payments on time. And within the last 12 months, you can
have a one times late and your credit score is needed on that is a 580. So if you meet those two
parameters, base you qualify. If you're looking to pull out cash, you
can go up to 80% of your home's value and pull out cash to pay off any bills
or take out as much money as you want.

Credit issues. This is the area that plays a role in many
people when they call and try to qualify. So what I mean by that is
bankruptcies in foreclosures. Okay. So bankruptcies are broken
down into two pieces. There's a BK seven. That they call it and a
bankruptcy or a BK 13. Okay. I won't explain what those are, but
the time duration in those are, if you filed a Chapter 7 bankruptcy, you
need to be out of that for two years. If you filed or are in a
Chapter 13 bankruptcy, if you've completed it, you need to be out. And we need to get a pay
history on that to make sure you didn't have any late pays. But if you're in a Chapter 13
bankruptcy right now, and you've been in it for a year or more, we might
be able to help you there as well. We just need to show the pay
history with that with no late pays. We have to put that payment into
what we call your debt ratio.

Foreclosures. You need to be out of a foreclosure
for at least three years from the date that the deed came out of your name. Okay.
So those are the credit. I'll say the credit issues
with FHA guidelines. Now debt ratio is an area that a
lot of people get confused with, but what your debt ratio basically is
in its simplest form is you take all the creditors on your credit report
divided by your gross monthly income. The standard out there with most lenders
are they'll only allow you to go to 50%. However, FHA will approve
loans up to 57% debt ratio. So that means if you called a lender
again, you called another lender. They might have that overlay that,
you have a 51% debt ratio and you got turned down where if you came
to me, I could have approved you. Now, the last piece of this puzzle
is the rate and the costs for an FHA. Okay, so I'm gonna break this down. This is a little detailed FHA
basically has very good rates.

The reason behind that is
it's their government-backed. Okay. Their
government backed. However, there's a cost to that. So when you get an FHA loan, FHA,
actually charges you 1.75% of the loan amount to ensure your loan. Also, they have we call it an
MIP Mortgage Insurance Premium. You guys might know it as a PMI factor. So they also charge you MIP or mortgage
insurance of 0.85 on a monthly basis. So that's sometimes that's a good rate. Sometimes that's a bad rate depending. So here's the sweet spot. Let me just break it down to this way. If your credit score is under 680,
most of the time, it's cheaper and wiser to go with an FHA loan. Okay. Why? Because you'll get a better rate
than a conventional loan plus your PMI or MIP is lower on FHA. That it is with a conventional loan,
however, it's not a long-term loan. So what we usually do is we put you
into the FHA program, keep you in that for a year or two, to get everything
situated, your credit scores up, maybe your bankruptcy gets a little
bit older, try to drive down some of your debts because a conventional loan
will go to a 50 debt ratio where an FHA loan will go to a 57 debt ratio.

So in conclusion, FHA loans can
be tricky because of overlays. Okay. You might call a lender where they
turn you down and then you might call another lender and they approve you. And you're just like why? And its overlays. So we have only one overlay, like I
stated, and that's your credit score? So if you have a credit score of 580
or higher, and you've been rejected somewhere else, please let us know. If you have a debt ratio,
that's over 50% got denied. Let me know if you have a bankruptcy, that's,
over two years old, but not four years. Let me know. So there's a lot of reasons why I should
be able to help you with an FHA loan where a lot of lenders won't be able to. So hopefully you found
value in this video. If you did, don't forget to give us thumbs
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God bless guys. Hope to hear from you soon. Bye-bye..

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