Ask Kate about FHA Mortgage Financing

by Karen in N.Y., Wacky in Oxnatd, Bridget in Michigan, Michele in New York, and

5 homeowners ask Kate about financing their homes with the FHA mortgage: Do sellers snub home buyers with FHA home loans? Does FHA streamline refinancing approve homeowners with low credit scores? Can I remodel my home with the FHA rehab loan? Is it worth the cost and effort to refinance my home? Will FHA increase my mortgage insurance premiums if I refinance my mortgage?


Question 1: Do Sellers Snub Home Buyers with FHA Loans?

By Karen from N.Y.

Hello. I have been reading mixed opinions on whether or not sellers snub buyers with FHA financing. Would you please tell me if it is indeed harder to buy a home with this type of financing? Thank you for your time. Karen

***zz-portrait-left.shtml*** Ask Kate answers: Do Sellers Snub Home Buyers with FHA Loans

Hi Karen,

In the 90s when sub-prime lending was popular, many home buyers with FHA financing were snubbed, just as you describe.

Sub-prime mortgage appraisals were easier. Often, no verification of down payment or income was necessary.

But with the 2007 fall in the financial markets, FHA was once again deemed the mortgage of choice, with good cause. Mortgage companies were imploding, funds for conventional mortgages were drying up. Investors rushed to pile on guidelines.

And FHA home loans came out the winner. Lo and behold, home buyers discovered the friendliest credit requirements in FHA loan approvals. It was the case of FHA coming to the rescue of American homeownership, just as it had in 1934 during the Great Depression.

Back to your question! Whether or not your offer is snubbed will depend in part on past experiences with FHA among the seller and real estate agents. Your lender's ability to communicate the strength of your financing will also help to put the parties at ease.

That's why I say it's imperative to pick your Home Buyer's Dream Team well. Start here with the first step and continue through the series: Buying a House Part I.

Happy home buying,


Question 2: Does FHA Streamline Refinancing Allow Low Credit Scores?

By Wacky from Oxnatd

Kate, We cosigned for my daughter and son-in-law on an FHA loan. My husband and my credit scores are good but not the kids'. Who will approve a streamline refinance with their not-so-good scores? I don't get it; the documentation states scores are not a factor so why when I contact the lender do they say they have a 640 minimum credit score?

***zz-portrait-left.shtml*** Ask Kate answers: Does FHA Streamline Refinancing Allow Low Credit Scores

Hi Wacky,

First a little background on co-borrowers and credit scoring.

Can a co-borrower help strengthen the credit score of another co-borrower? Not really. As opposed to income which is lumped together for qualifying purposes, high credit scores do not boost low scores.

In other words, a credit score of 8oo does not combine with a 500 score to equal a 650 average. On the contrary, qualifying is based on the lowest of the borrowers' middle credit scores.

It's true that FHA guidelines state a credit report is not necessary for non-credit qualifying streamline refinances. But it's important to continue reading FHA's manual...
"The lender, however, may require this as part of its credit policy."
These differences among lenders are called overlays and contribute to the confusion among homeowners who are shopping for a mortgage. Go here for FHA Streamline Refinance Overview where I set the myths straight.

Best wishes to your family,


Question 3: Can I Remodel with the FHA Rehab Loan?

By Bridget from Michigan

Hi, I was wondering if you can use an FHA rehab loan to put an addition on a home?

***zz-portrait-left.shtml*** Ask Kate answers: Can I Remodel with the FHA Rehab Loan

Hi Bridget,

FHA rehab loans, also called 203(k), can be used to fix leaky roofs. Other common housing issues requiring rehabilitation include weather stripping or replacement of rotted decking.

No luxury items though. So nobody plan on including a new big screen TV in the rehab loan!

But how about remodeling or room additions? The answer is yes, even if your home is not in need of any other rehab projects.

There are actually 3 main ways to benefit from this type of construction financing. But you may be surprised at the second category. Go here to find out how to get your dream home for less at FHA Rehab Loan.

Best wishes in your remodeling adventures,


Question 4: Is it Worth the Cost and Effort to Refinance My Mortgage?

By Michele from New York

Hi - I made my first-time homeowner purchase 2 1/2 years ago for $195,000 with an 30 year FHA mortgage, locked in at 5.625% interest rate. I've been watching the mortgage rates drop down lower and lower, and I'm wondering if it's worth the cost and effort to refinance my home?

I have $191,000 left on the principal, plus the interest from the bank loan. I have excellent credit, so I don't anticipate banking issues, but I just don't know if this is the right course for me to take at this time. Any advice would be appreciated.

***zz-portrait-left.shtml*** Ask Kate answers: Is it Worth the Cost and Effort to Refinance My Mortgage

Hi Michele,

Since you already are financed with FHA, why not look into the streamline refinance process?

It's greatly simplified. For qualified borrowers, some FHA-approved lenders will forgo appraisals, credit reports, as well as income verifications. But you can expect traditional closing costs, with the possible exception of the appraisal fee.

Minimum qualifications for FHA streamline refinancing include:
  • Current FHA financing
  • 210 days having passed since your last mortgage was paid off
  • 6 payments have been made on current mortgage
  • No 30, 60, 90 day lates on housing payments for previous 12 months
  • Mortgage payments must be current at closing
  • Refinance must result in net tangible benefit
To learn about the required net tangible benefit, go to Streamline Refinancing with FHA.

Good luck,


Question 5: Did FHA Increase Mortgage Insurance Premiums?

I was told by my lender that if I want to refinance my FHA loan in order to get a lower rate, my PMI will double. I would like to know if that is true.

***zz-portrait-left.shtml*** Ask Kate answers: Did FHA Increase Mortgage Insurance Premiums

Mortgage insurance premiums have recently changed for FHA home loans.

For some homeowners who are refinancing, mortgage insurance will increase. For others, the premiums could go down when they refinance.

It depends on whether your current FHA loan was acquired before or after June 1, 2009.

To learn about the 2 types of FHA mortgage insurance and changes to premiums effective June 11, 2012, go to FHA Streamline Refinancing Announcement by President Obama.

Best wishes,


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Social Security Disability Income
by: First Time Home Buyer

Hello, I am a first time home buyer, single mother of a 26 year old and a 13 year old. I am on Social Security disability. My daughter and I want to buy a home together using our combined incomes, but I was told that can't be done through the FHA program.

Is this correct?

I have also thought about the rent to own option because we have some work to do on our credit first. Regardless of whether we buy now or not, we intend to work on our credit issues. What do you think is our best plan of action?

Hi, Kate here.

Receiving this type of income and using your daughter as a co-borrower should not keep you from applying for FHA financing.

1. FHA loan requirements allow for different kinds of qualifying income but will ask for documentation showing that your Social Security Disability income will continue for at least three years.

2. Many FHA home buyers and homeowners who otherwise could not qualify apply with co-borrowers. In fact, that is one of the attractive benefits of using FHA financing. Conventional mortgage guidelines are not nearly as friendly when it comes to co-borrowers.

No matter which route you choose for buying a house, strengthening your credit is crucial. Start today with my tips at Fixing Bad Credit to Improve Your Credit Rating.

Good luck and best wishes, Kate

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