If you’ve spent any time in the housing market you know that there are hundreds and hundreds of lenders. You also know that some of these lenders operate outside of the Federal Housing Administration, and some of them are approved to give loans within it. What you may not know is the difference between the two. Why are some lenders approved to work within the federal program and others aren’t? And is one type of lender better than the other? A good way to answer this question is to determine what is required for a lender to become federally approved.
The Basic Guidelines of the FHA 4155
Before a lender can offer loans that are insured through the Federal Housing Administration, he has to go through the approval process established by the government. This approval process makes sure that the lender is capable of handling the loans – this means that they have to have a fair amount of experience and they need to have access to the resources necessary for completion of the loan.
The first requirement established by the FHA 4155 handbook is that the lender must have at least five years of previous experience in the single family mortgage industry. If the lender itself does not have this experience then it must have a principal officer with this experience. He will be required to have operated in a managing role in the field of single family mortgages for at least five years.
If the requirement of experience has been met, the lending institution will move on to the next staff requirement, which is an underwriter. According to the FHA 4155 a lender will not be considered for FHA approval if he does not have at least one member of the full time working staff operating as an underwriter. The underwriter is an essential key in the passing of any home loans. Without him, the process can be delayed or stopped which is why it is a requirement before a lender can be federally approved.
In addition to the proper staffing, the lender will also have to provide a Quality Control Plan. This plan basically shows the housing administration that the lender will comply with the rules that have been established by the administration. These rules are in line with the Fair Housing Act and ensure that the loans are properly issued and maintained. In addition to submitting a Quality Control Plan, the FHA 4155 handbook states that a lender is required to periodically go over and adjust the plan as needed.
Guidelines for Additional Staff – Appraiser and Inspector
A lender must employ an underwriter and an experienced mortgage officer before they can be approved, but it’s not uncommon for a lender to employ additional staff members as well. Having a member of the team who is able to perform an inspection or an appraisal that follows the FHA guidelines can be hugely beneficial. However, if these members are employed on the staff they have to be on the appraiser roster and inspector roster of the Federal Housing Administration, which means that they went through their own approval process to be able to work in the program. There are a few additional rules that they must follow, in addition to being on the roster. For example, if one person is both the staff underwriter and appraiser, he cannot operate in both jobs on a single loan. Basically, he can’t do an appraisal on a property and then turn around and do the underwriting analysis. It’s a conflict of interest. However, this person can analyze everything, including credit and appraisal, as long as he didn’t perform the appraisal. The rules for these employees tend to get a little technical, but they are in place to make sure the lender follows all the necessary guidelines.
So the big question after learning what the requirements are for a lender to become approved is whether or not FHA lenders are better than traditional lenders. In a nutshell, the answer is no. Each type of lender offers unique benefits to the homeowner. However, with an approved lender you are guaranteed to be working with an experienced staff and a lender who will be able to offer you the rates that only a federally insured lender will. This means your initial cost may be lower, especially in regards to your down payment. You may also be approved for a loan even if your financial history is less than perfect. Traditional lenders do not have this ability because they carry more risk than a federal lender.