FHA Overview

The government offers two kinds of loans, VA and FHA. This article will give an overview of FHA loans.

The Federal Housing Administration (FHA) runs several programs to promote home ownership. FHA was created by the Federal Government to provide affordable financing for qualified borrowers who wish to buy a home. FHA provides an avenue for many people who would otherwise not be able to afford a home.

FHA loans are attractive to lenders because the FHA insures the loan against default. That way, if the buyer finds himself in a position where he can’t make his house payment, the lender knows that the payment of the loan is guaranteed by the FHA. Since the lender has lower risk, he is able to provide loans to people who fall into categories which would otherwise be excluded from approval. Such categories are:

• Consumers with no established credit or low credit scoring
• Consumers with discharged bankruptcies
• Consumers who do not have a large amount of money saved for a down payment
• Consumers with limited funds for closing costs

Borrowers who can provide proof of sufficient income to pay the mortgage are likely to be granted an FHA loan. In lieu of conventional credit scores, the applicant can use alternative credit. Showing records of utility bills, cable TV, insurance premiums, child care or other accounts are examples of alternative credit. Borrowers with a bankruptcy that was discharged at least two years ago are still eligible for an FHA loan. And down payments can be as little as 3% of the selling price of the home.

In addition to the 3% down payment, the borrower pays an upfront insurance premium which is approximately 1.5% of the loan amount. This money can be incorporated into the amount of the loan. The borrower also pays a monthly premium of .5% of the loan amount divided by 12 months. The down payment of 3% can be a gift. No reserves are required. In most instances the seller may assist with closing costs up to 6% which is also financed into the loan amount.

FHA interest rates are competitive with conventional rates for the most part. The mortgage insurance premiums paid on an FHA loan are typically equal to 2.25% of the purchase price of the property with a renewal premium of .500% in subsequent years.

FHA Loans and Mortgages

Sometimes getting approved for a mortgage can be harder than finding that perfect home. With that in mind, we put together a list of 5 tips to help you get the mortgage you want.

1. Increased Ability To Finance Your Closing Costs

You can now finance up to 100% of your closing costs thanks to recent changes in Federal Housing Administration (FHA) guidelines, compared to the old limit of 97%. This is very good news for the first time home buyer who typically has less cash available at the time of closing.

2. Increased FHA Limits

There FHA loan amount maximums have increased, which is particularly helpful for people living in high cost housing markets. FHA ‘s mortgage limit is now tied to local housing costs. The limit is now 95% of the median home price, or 75% of the Fannie Mae maximum loan amount, which ever is lower. This is another avenue for the first time home buyer to achieve the dream of home ownership.

3. Increased Accessibility To Down Payment Assistance Programs

With the rapid increase in home prices over recent years, more and more people are having the dream of home ownership ripped from their hands. Typically one had to go through a rigorous process to qualify for a down payment assistance program. Today, there are now programs which have very little hassle. Ask your mortgage broker if they have access to such options.

4. Rapid Loan Approval

One of the latest innovations in the mortgage industry is the advent of computerized loan approval. These programs provide both rapid loan approval and more uniform loan approval practices. This type of approval is done by scoring a borrower’s credit worthiness which quantifies the risk they will default on the loan. Does your mortgage broker use such a program?

5. Affordable Mortgages Which Don‘t Verify Income

These loans are perfect for those people who are self employed, real estate investors, retired persons and anyone who doesn’t want to have to prove their income. It is essential to have a good credit score in order to qualify for non income verified loan.

Finding The Right Home Loan Has Never Been Easier!

FHA Loans | Understanding Terms

What is a loan to value?

The loan-to-value (LTV) is the original loan
Amount divided by the lower of the sales price or the appraised value. It is calculated for each loan, and the results determine which rates apply to that loan. Mortgage insurance rates are reduced for each lower LTV category, reflecting a smaller default risk when a borrower has made a larger down payment.