The main advantage of a FHA vs. conventional loan is that the credit qualifying criteria for a borrower are not as strict as conventional loan financing and the down payment or Equity requirements are less. In comparing a purchase money FHA loan against a Conforming or A paper loan, the FHA loan will generally have the least amount of money required to close and the lower payment, FHA loans will allow the borrower who has had a few "credit problems" or those without a credit history to buy a home. An FHA Underwriter will require a reasonable explanation of these derogatory items, but will approach a person's credit history with common sense credit underwriting. Most notably, borrowers with extenuating circumstances surrounding a bankruptcy that was discharged 2 years ago can be approved for maximum financing. Conventional A Paper financing, on the other hand, would require 4 years to have passed to be eligible for consideration and relies heavily upon credit scoring. If your score is below the minimum standard, you will not qualify or you will be place in a higher rate Subprime, Alt A or A minus loan product. If a borrower does have past credit issues an FHA loan may be significantly cheaper than an alternative loan such as subprime, ALT A, or A minus. These other programs generally have higher interested rate of require a larger down payment or Equity position. Many of these alternative loan products have Pre Payment penalties where as FHA loan do not have such penalties. Another advantage of a FHA vs. conventional loan is that FHA is one of the few home mortgage programs that allow a borrower to have their down payment gifted from a family member, a governmental agency, or non-profit organization. This allows home buyers without the necessary money to buy a home today.

In analyzing a borrower¿s credit and applying the fha credit requirement, past credit performance serves as the most useful guide in determining the attitude toward credit obligations. A borrower who has made payments on previous or current obligations in a timely manner represents a reduced risk. Conversely, if the credit history, despite adequate income to support obligations, reflects continuous slow payments, judgments, and delinquent accounts, strong compensating factors will be necessary to approve the loan. When an underwriter looks at a borrower's Fico Scores/Reports , it is the overall pattern of credit behavior that must be examined rather than isolated occurrences of unsatisfactory or slow payments causing bad credit. If a borrower had a period of financial difficulty in the past, this does not necessarily mean that the loan will be denied, particularly if a good payment record has been maintained since. When bad credit accounts are revealed, the underwriter is looking to determine if the cause of the late payments is due to financial mismanagement or extenuating circumstances. There is a big difference between these two items which will be discussed later Most underwriters will ignore minor derogatory information occurring two or more years ago. However, major indications of derogatory credit, including judgments and collections, and any other recent credit problems, require sufficient written explanation from the borrower. The borrower's explanation must make sense and be consistent with other credit information in the file. Underwriters will look very closely to make sure that all dates correspond to the explanation The basic hierarchy of credit evaluation is the manner of payments made on previous housing expenses, including utilities, followed by the payment history of installment debts then revolving accounts. Generally, an individual with no late housing or installment debt payments should be considered as having an acceptable credit history unless there is major derogatory credit on his or her revolving accounts.

Currently FHA down payment rules require the borrower's cash investment in the property must equal a minimum of Three Percent (3%). All funds must be verified from acceptable sources. If you do not have a down payment saved, please see the section on "Where to Get Down Payment Money". Beginning January 1, 2009 The Housing and Economic Recovery Act of 2008 revised the National Housing Act to: ¿ Require that the borrower "shall have paid, in cash or its equivalent...and amount equal to not less than 3.5% of the appraised value of the property..." ¿ Eliminate the variable loan to value limits that were based on the combination of the property and the average closing cost of the State where the property is located (also know as the "downpayment simplification"); and ¿ Limit the total FHA insured first mortgage to 100 percent of the appraised value, and require the inclusion of the upfront mortgage insurance premium (UFMIP) to be within that limit. Understanding where you can get money for your down payment will help you when your are ready to apply for your FHA loan. Complete article can be found at the following we site:www.fhainfo.com