FHA Loans

Mortgage lending has been a quickly transforming environment within the last several years. Additional regulations and guidelines have resulted in hundreds of thousands of families that were able to buy or refinance a property just a couple years ago being unable to get approved for a mortgage loan. A growing number of home buyers are using government-insured FHA home loans because of the favorable terms that they offer, compared to other loan types.  

What is the Federal Housing Administration?

The FHA (quick for Federal Housing Administration) has been in existence since 1934 when it was founded in the course of the Great Depression. Since its inception over 75 years ago, over 37 million mortgages have been insured by the FHA in the United States. The FHA is the largest government insurer of home loans in the world today. FHA Loans have become so popular in today’s lending climate because they can be much more accommodating than other mortgages, but they do contain specific credit, income and property criteria for a mortgage to get approved. A number of the more crucial requirements are listed beneath. 

FHA Loan Income Requirements

The income verification and earnings capacity evaluation of the borrowers is an essential component of the FHA mortgage approval process because it shows the individuals capacity to repay the home loan. FHA loans utilize two separate DTI Ratios (Debt-To-Income Ratios) to determine a borrowers income eligibility. The initial ratio to be applied is the housing cost ratio (Top Ratio). To meet the Top Ratio requirements, the new month to month housing expenses can not exceed 31 percent of the borrowers total income. Housing expenses include principal and interest mortgage payment, taxes and insurance. Once it is determined that the housing ratio meets criteria for approval, the total expense ratio (Bottom Ratio) is applied. To meet Bottom Ratio criteria, the individuals complete monthly expenditures, including the new housing payment, can not exceed 43% of their total monthly income. Other expenses that are factored into the total expense ratio include credit card payments, car payments, student loans, and any other monthly payments that are to be paid. A borrowers credit report may be used to verify monthly expenses. 

FHA Loan Credit Requirements

To meet FHA loan credit criteria, the borrowers almost certainly be required to have a FICO credit score of 620 or above. The credit score used for FHA loan qualification is determined by obtaining the borrower’s scores from each of the three major credit bureaus, then eliminating the highest and lowest scores. This score is referred to as the “middle score” or “mid score”. Although the FHA has set its minimum credit score requirement at a 580 for many of its programs, individual lending institutions are free to add additional requirements and raise the minimum score as they see fit. It can be acceptable for the borrower to posses a bankruptcy in their past and still qualify, but you will find that additional guidelines will apply. If an individual possesses a Chapter 13 bankruptcy in their past, they must provide proof that all court ordered payments have been made on time for at least one year before application. If an individual has a Chapter 7 bankruptcy in their past, they must wait at least two years from the discharge date before application. 

FHA Loan Property Requirements

A home must have an FHA appraisal performed by a certified appraiser to be an acceptable property for an FHA loan. To satisfy the FHA appraisal requirements, the home must be in reasonably good condition. Certain disqualifying appraisal conditions may include but are not limited to structural problems, leaking roofs or missing exterior paint or siding. The property appraised value is extremely significant in the FHA loan process and the home must appraise for at least the purchase price. The highest FHA mortgage amount changes from county to county and metropolitan areas throughout the United States. The smallest maximum FHA loan amount in any county is $271,050, but can reach as large as $729,750 in particular high-cost locations.

First Time Homebuyers

You are thinking about buying a home for the first time, you have heard your real estate agent, friends or lender speak about First Time Home Buyers loans... FHA, Rural Housing, VA loans, HUD homes all of these terms really are confusing.  There are several programs available through the government to help you finance your first home.


Now, be aware that the term First time Home buyer is really just that... Agencies now a days don't actually provide money for first time home buyers; instead they facilitate programs that encourage banks and lenders to grant mortgages.

The FHA Loan

The Federal Housing Administration (FHA) provides what is probably the most popular home loan program for first time buyers. Rather than lending the money themselves, the FHA insures a loan made by a private lending institution. This insurance gives the lender a measure of peace in knowing that even if the homeowner defaults on the loan, they will not lose their investment. In such cases, the FHA steps in and pays the balance of the loan, then assumes ownership of the house and resells it.
An FHA loan is designed specifically for first time home buyers in the moderate to low income bracket. Requirements for FHA loans are less strict than those for a traditional fixed rate mortgage. FHA loans are so widely used in the housing industry that they are generally the first ones thought of when first time home buyers apply for a mortgage.

Housing and Urban Development Homes - HUD Homes

HUD Homes are properties offered to low income buyers through a program administered by the U.S. Department of Housing and Urban Development.  As is the case with the FHA loan, HUD does NOT actually loan the home buyer any money.  In fact, HUD doesn't even insure the loan.  A HUD home is acquired through an FHA backed mortgage issued by a private lending institution.  If the home buyer defaults on his mortgage, FHA pays the balance of the loan, then HUD acquires the home and resells it, usually at less than market value.  HUD homes are aimed at home buyers with limited income.

VA Loans

The Veterans Administration (VA) provides a loan program similar to that of the FHA program. Again, rather than loaning money themselves, the VA guarantees a loan made by a private lender. These loans are aimed at U.S. military veterans and their families. A VA loan can be acquired not only by a veteran, but also by a widow or widower as long as that individual does not remarry.
The main advantage of the VA loan is the fact that home buyers are not required to purchase private mortgage insurance or provide a down payment. VA loans are designed to help military personnel purchase homes in areas where financing options are limited.


The USDA Development Housing Loan - Rural Housing


The U.S. Department of Agriculture (USDA) offers yet another guaranteed loan program designed to help lower income first time home buyers purchase homes in rural areas. First time home buyers benefit from this program with no down payment, no mortgage insurance, and lower credit rating requirements to qualify. The USDA understands that first time home buyers in rural environments have additional financial challenges that need to be addressed in order to purchase a home. These USDA-guaranteed loans fit the bill perfectly.

The four types of federal first time home loan programs listed here are but a small sampling of what is available. Various state governments also offer low interest mortgages for first time home buyers, as do some larger cities and counties. Your real estate agent and mortgage broker should be familiar with the government backed loans available in your area. They'll be happy to work with you to acquire the best financing for your needs.

Downpayment Options

I have received many calls and heard may people say that they can't afford to buy a home because they don't have 20% down.  There is nothing further from the truth than that.





*  There is a fabulous loan for Rural Areas that is called USDA Rural Housing Development, this Loan has income limits please see the link below to check income limits on your State

http://www.rurdev.usda.gov/HSF-Guar_Income_Limits.html

With this Link you can check Eligibility

http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

This Loan is not for everybody but it is a great loan because you don't have to put any downpayment and the best thing is that you have NO Mortgage Insurance, which could result in very good savings in the long run.  I will go into detail later on in a different post.

*  FHA - The Federal Housing Administration, promotes different types of programs to promote home ownership.  FHA is one of them, this program allows you to get into a house with as little as 3.5% down.  This loans in this market are the most popular, but are not for everybody.   They are easy to qualify as you don't have to have perfect credit, just decent credit.  You can check the link below to see what is the Max Loan amount you can get in your area:

https://entp.hud.gov/idapp/html/hicostlook.cfm


*  VA - This loan is guaranteed by the Veterans Administration.  This loan is good for Veterans.  You can get a loan for 100% Financing, meaning NO down payment and NO Mortgage Insurance.

Check the following Link for Eligibility

http://www.benefits.va.gov/homeloans/elig_center.asp

*  Conventional Loans - This loan is your standard 30 year or 15 year Mortgage, pretty much you have to have good credit, your debt-to-income ratios need to be in line.  Even for these type of loans you can come up to the table with as little as 5% down.  Your Mortgage Insurance will be then high but still you will have an option to come to the table with that little down payment.  You will need to have 20% down in order to avoid paying mortgage insurance.

In order to make a decision on how much down you need to put and which loan program is best for you, review your options with your Lender, they will be able to help you and I am sure they will help you decide which loan will better suit your needs.  These are not the only types of loans you can get either, maybe your lending institution has a portfolio loan or another one that will work for you best.