FHA compensating factors can make the mortgage business seem so very inconsistent. You might have read the basic FHA guidelines and they are usually followed to the "t", but all borrowers are different which proves nothing is ever as black and white as it seems. If you are a borrower wanting an FHA home loan and come very close to not qualifying, you may have strong factors that can compensate for that one area where you may fall outside of the guidelines.
Compensating factors can be known as that little extra that can make a difference between a loan being approved or denied. They are never a guarantee and are interpreted differently by each underwriter on how much they weigh the factors in their overall decision making process. The rule is typically there should be three strong factors to compensate for one issue that falls outside of the guidelines, but how many compensating factors you need is subject to an underwriter's discretion. Of course, the more compensating factors you have the better your chances are on getting your loan approved.
As you can see nothing is really set in concrete. Compensating factors can be any of the following as long as they are very strong:
Taking a homebuyer education class
Amount of down payment, putting 10% instead of the required 3.5%
Debt Ratios significantly under the maximums
Strong credit and/or credit scores
Time on the job, the longer the better
Time at current residence, the longer the better
Down payment has been saved by the borrower verses getting a gift
Amount of money in savings after the purchase, often called reserves
Change in housing expenses, you don't want a large increase
No derogatory accounts with in the last 12 months
While every borrower's situation is unique, most of the time when a mortgage company tells a borrower to not look at an FHA loan it's because they are not a HUD approved FHA Lender. You can see why it is very important that you get an experienced loan officer. Home Town Mortgage goes above and beyond for their borrowers. We never let a file get denied without looking at every angle of the loan.
The qualification process is much easier for a FHA home mortgage than it is for the qualification process involved in conventional Freddie/Fannie loan programs or Sub-Prime loans. The benefits of a FHA mortgage are significant, including the most important being the security offered to borrowers and the expanded opportunities of homeownership that some home buyers might not otherwise receive.
