FHA released a mortgagee letter yesterday wherein they are again allowing “compensating factors” on manually underwritten loans, granting loan approval to home buyers with no credit and a 50% debt-to-income ratio. While this sounds at first like the guidelines are loosening up and Mayberry is again open for business–followed by a fish fry, a barn raisin’ and a hoe down, don’t buy into the hype. So far it’s just a 17 page exercise in futility since FHA doesn’t buy loans, they just make the rules. You still need a bank who is willing to take the risk and finance the untried applicant and his fanciful charge toward home ownership. And as much as I think that guy deserves a house without having to pimp himself to the RC Willeys of the world for 12 monthly installments, the fact of the matter is that banks (the ones who actually survived the carnage of the subprime witch hunt) are still a little banged up and will be skeptical to steer into the murky waters for some time to come, even if they did have a Wall Street fund willing to buy the paper.
If you do have “traditional” credit and meet all of the other rules,
FHA loans are still to be had down at 3.75% and while Conventional’s best
offering is at 4.375% for 30 year loans. Fifteen year rates are in the
3.25-3.5% range (APR will be higher, depending on the loan and down payment amounts, and amortization term–as closing costs and the presence of mortgage insurance affect each loan differently.)