Helpful Mortgage And Real Estate Advice

FHA Home Loans

Currently, the Federal Housing Administration (FHA) Mortgage Program is the greatest insurer of United States loans, covering 34 million properties nationwide. The program originated back in 1934 as a form of mortgage insurance to back banks in case the borrower is no longer able to cover their loan expenses. In 1965 it became a part of the U.S. Department of Housing and Urban Development.

In August 2013, the FHA announced its latest program establishment, calling it the ‘Extenuating Circumstances Exception Guideline’. This new program is created to give the American people a second chance at homeownership, with the exceptional circumstances that they have in the past experienced economic hardship which have forced them to give up their home to a foreclosure, bankruptcy, short sale, judgment, deed-in-lieu, Chapter 7, Chapter 13, or a pre-foreclosure.

FHA Eligibility Guidelines

Compared to many other home loan programs, the FHA is not as lenient. FHA loans are highly recommended for individuals with average to great credit that have been denied a traditional loan. Eligibility requirements for this loan are specified below:

  • The borrower must be the primary residence of the home.
  • The buyer needs to be able to make a down payment of at least 3.5%.
  • Properties must be assessed by a FHA-approved appraiser.
  • Credit history needs to be establish for the last 1 to 2 years.
  • Income proofs required.
  • Applicant must be employed by the same employer for 2 years or more.
  • The property for consideration must be one-to-four units.

Occupancy Requirements

FHA Loans can only be used for primary residences. These loans can be used as rental properties only if the home has more than one unit and the primary resident lives in the same building. The borrower also needs to move into the home approximately 60 after closing.

Approved Property Types

There are many FHA loan eligible property types, such as:

  • Single family homes
  • Multi-unit properties
  • Condominiums
  • Manufactured homes

Credit History Requirements

The FHA requires a credit score minimum of only 620 in order to be considered. When applying for this loan type, the borrower’s credit will be pulled and the FHA will be looking for any 30-day late marks. Having an excess of more than 2 30-day late marks in the last 2 years may jeopardize a person’s chances of qualifying.

For borrowers with no credit history, the FHA will make an exception to accept recent utility bills and proof of payment on those bills.

Income Requirements

In most cases the FHA requires the below income proofs:

  • Proof of employment for at least 2 years with the same employer.
  • Pulled credit history.
  • No more than 2 30-day late marks on the borrower’s credit score in the past 2 years.
  • Minimal employment gaps.
  • 30% or less of monthly income covers the projected mortgage payment.

With FHA 203(k) loans, you can go to 110% of the after-improved value, subject, of course, to the maximum loan amount for the county the home is located in. However, with streamline refinances, the maximum is 97.75% LTV with an appraisal. On a streamline refinance without an appraisal, there is no LTV limit – only because you don’t truly know the market value of the home at the time of the refinance. However, if you do an FHA streamline refinance without an appraisal, then the new loan amount can not exceed the original loan amount.

Required Documents

In order to qualify for the loan, a buyer needs to provide the below proofs to their mortgage professional:

  • Proof of income
  • Bank account statements
  • W-2s from last 2 years
  • Personal tax returns from the last 2 years
  • Value of all assets
  • Past 2 years of residences
  • Social Security Card
  • Details on any other active loans and mortgages

Down Payment

FHA Loans give borrowers a break by requiring only a 3.5% down payment versus the standard 5%. The goal is to make the home more affordable to buyers.

Please note: If a homeowner ends up bidding for a home, they are fully response for covering the excess balance. For example, if the home was appraised at $150,000, but the buyer outbid another individual at $180,000, then they would be responsible for the $30,000, plus 3.5% down.

FHA Home Loans Frequently Asked Questions

Is a FHA Loan the right loan for everyone?

No. In fact, if a borrower is a United States veteran or living in a rural community, they should speak with a mortgage professional right away. Certain programs allow individuals to put zero money down, and even offer lower interest rates. Before jumping the gun, make sure to go with the best loan option.

If a borrower can not put 3.5% down can they still apply for a FHA Loan?

No. FHA loans require 3.5% down on a new property. If this is not affordable, please ask a mortgage professional about qualifying for a more lenient loan type.

When a borrower has more than 2 30-day late marks are they automatically ineligible for a loan?

Maybe. This will not be the only factor taken into consideration. If the borrower’s credit score is significantly over 620, this will help their chances of qualifying.

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