The Federal Housing Administration (FHA) is a federal agency within the U.S. Department of Housing and Urban Development (HUD). Since the 1930's, FHA loan programs were designed to help creditworthy low-to-moderate income families fulfill the dream of home ownership. The FHA insures home loan mortgages, rather than actually lending money.
Today, FHA loan programs have become more popular to a wider range of audiences, primarily because of the competitive rates. Credit requirements are flexible, and down payment requirements are especially low.
FHA does not provide direct financing nor does it set the interest rates on the mortgages it insures. This program provides mortgage insurance to protect lenders against the risk of default on mortgages, thus making these loans secure.
Because the US government is giving you $8,000 tax credit towards purchasing a new home.
Only a 3.5% down payment is required. This can be a gift from a family member or an employer.
Low monthly mortgage insurance compared to private mortgage insurance
More flexible underwriting guidelines compared to conventional loans
Limits on the amount of closing costs charged to the buyer
“Non-traditional” credit may be used
Allows the seller to pay up to 6% of the closing costs
Financing to as much as $729,750 for certain counties in certain states
Helps you keep your home. FHA provides options to help keep you in your home and avoid foreclosure.
The Department of Housing and Urban Development (HUD) set the maximum loan limit to $729,750 for certain counties and states. See a complete list of loan limits by county and state: FHA Loan Limits
The payout terms and conditions of each FHA mortgage should be measured against your particular situation to find the FHA loan solution to meet your needs. In doing so, we consider the home you want to purchase and your yearly gross anticipated earnings.
The first question you need to ask yourself is: "How long will I (or we) stay in this home?" The answer determines your program.
Here are the programs available to FHA eligible borrowers:
30-year fixed mortgage
15-year fixed mortgage
5/1 ARM
30-year fixed Jumbo ($417K to $729,750: strict guidelines apply)
Renovation Loans You might see a home you'd like to buy, but it needs a lot of work. FHA has a loan for rehabilitating and repairing single-family properties called the FHA Renovation Loan.
You can get one loan which combines the mortgage and the cost of repairs. The mortgage amount is based on the projected value of the property with the work completed. The advantage of this loan is that you can buy a home that needs a lot of work, but have only one mortgage payment, and you can have the repairs completed after buying the home.
Credit Requirement Generally, a borrower who has made timely payments for the last 12 months serves as a guide and demonstrates their willingness to repay future credit obligations. New FHA Policy changes require minimum FICO score to be 580 for 3.5% down payment and anyone purchasing with a score lower than 580 will require 10% down payment. These FICO requirements will go into effect in the spring 2010. However, individual lenders will still require credit scores higher than 620.
A perfect credit score is not needed for an FHA mortgage loan approval. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a for a conventional loan. However, if your mid-score is below 620, we could probably help you improve it. Sometimes scores down to 580 are accepted if there are compensating factors that offset the credit risk.
Occupancy Requirement Must be a primary residence. No investment property or second home ownership is allowed.
Down Payment Requirement FHA loans have a low 3.5% down payment and that money can come from a family member or an employer as a gift. Other loan programs don't allow this. Learn more about Gift Funds.
DTI Requirement Debt-to-Income ratio (DTI) determines whether the borrower can reasonably be expected to meet the expenses involved with home ownership. This percentage is calculated by adding all the minimum monthly credit payments and dividing them by the gross monthly amount of income.
The maximum ratio allowed to qualify for FHA is 44%. However, compensating factors are taken into consideration for ratios slightly over 44%. Some compensating factors include the following:
Yes, as you will with most loans. Most loans require mortgage insurance when your down payment is less than 20% of the sales price.
Upfront Premiums FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage. The upfront premium is financed into the loan.
Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 Percent (will go up to 2.25% in the spring of 2010)
Streamline Refinances (all types) = 1.50 Percent
Annual Premiums An annual premium of 0.55% of the loan amount, to be remitted on a monthly basis, will also be charged based on the initial loan-to-value ratio and length of the mortgage (except for FHASecure delinquent mortgages).
Example: With a $200,000 loan amount the annual premium is $1,100 (0.55% x $200,000). Divide that $1,100 by 12 months to get a mortgage insurance payment of $91.67 per month.
