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Mortgage brokers who haven’t previously worked with FHA loans but want to start should dedicate themselves to doing it right. Deciding to focus on this form of lending without the proper research and preparation could cause problems. Complete FHA guidelines are easy to find online and available for free. Visit www.hud.gov or portal.hud.gov to begin your research.
More information about FHA underwriting requirements and establishing nontraditional credit reports can be found in HUD’s Handbook 4155.1 REV-5. In addition to reading this manual and learning about general guidelines and licensing requirements, you also should familiarize yourself with recent revisions to FHA-loan limits and policies. Failure to do so could lead to trouble for you, your clients and your company.
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Late in 2008, the FHA set the conforming-loan limit of $417,000 as its general single-family maximum-loan limit for this year. That figure changes for high- and low-cost areas, ranging from $271,050 to $625,500. To determine the loan limits for your areas of business, visit https://entp.hud.gov/idapp/html/hicostlook.cfm.
Also, remember that some of the shortcuts you may have previously used when dealing with subprime lenders have no place in your deals with the FHA. Though you may be tempted to chase numbers in your quest to make a profit, recall that there are no scratch-and-dent investors for FHA loans. As such, brokers working with wholesale lines should make sure that they have complete faith in every loan they approve.
You should also know that the FHA has a low threshold for defaults. It only takes a few buybacks for a broker to be cut off from FHA lending. This punishment could be disastrous for a company that claims to specialize in FHA lending.
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FHA programs can be a great tool for brokers who take the time to learn about them and master their intricacies. Remember, though, that they also can lead to trouble for those who move forward without proper preparation.
Darrin Stobaugh is owner of DES Financial Services in San Jose, Calif., and a 22-year veteran of the mortgage industry. He has held positions as a regional operations manager and corporate-underwriting manager at some of the top wholesale institutions in the industry.
E-mail him at dstobaugh@desfinancialservices.com.
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