FHA home loans are perfect for first time home buyers who want to take advantage of the low down payment requirement and for those who have credit blemishes. It is a government loan which makes qualifying for an FHA loan a lot easier than a conventional loan.
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→ What Are FHA Home Loans?
→ Why Have FHA Loans Become So Popular Again?
→ What Is The Difference Between An FHA Loan And A Conventional Mortgage?
→ Can I Finance My Closing Costs?
→ I Have Bad Credit, Can I Use An FHA Home Loan?
→ What Kind Of Property Can I Buy Using An FHA Home Loan?
→ How To Apply For An FHA Home Loan
→ How Many Times Can I Use An FHA Loan?
→ Get Started!
What Are FHA Loans?
An FHA insured loan is considered one of the best loan choices available today for any homebuyer seeking a low down payment combined with relatively easy qualifying standards. The Federal Housing Administration (FHA) is part of the U.S. Department of Housing and Urban Development (HUD).
HUD does not actually make the loan. The loan is actually funded by lenders who offer the FHA program.
The FHA simply protects the lender from loss in the event of borrower default. By guaranteeing the loan, the FHA is providing a type of federal assistance which makes home ownership available to low and moderate income buyers.
The FHA program was created in the 1930’s during the Great Depression as a tool to stimulate the US economy and stabilize the housing market. Since that time, many millions of low and moderate income borrowers have purchased or refinanced their homes using FHA loans.
Why Have FHA Loans Become So Popular Again?
During the housing boom, FHA loans were not so widely used. In 2007, FHA loans only made up about 3% of all loans funded nationally. During that time, FHA loans were not as attractive as conventional loans due to FHA’s loan limit restrictions, higher mortgage insurance costs and stricter appraisal guidelines. At that time, conventional loan products offered interest only options, 100% financing choices and low doc alternatives that tended to outshine the benefits offered by FHA loans.
Today, just about all of the loan products that previously competed with FHA loans are no longer available. Lenders now consider the previous products to be too risky and many people blame those loan products (especially subprime products) for being the root cause of the financial crisis and ultimately responsible for undermining the entire world economy.
In 2018, it was estimated that one out of every five mortgage loans originated in the United States is an FHA Loan! This is because FHA loans are considered easier to qualify for while also offering a lower down payment (3.5%) than the 20% required for most conventional loans. Another factor that has made FHA loans more competitive is the fact that real estate values have decreased, yet FHA loan limits remain unchanged. Therefore, many more homes are eligible for FHA financing than ever before based on the maximum loan sizes available in relation to typical sales prices.
If you are interested in obtaining a loan quote, contact one of our Government Loan Specialists at 877-432-LOAN (877-432-5626).
What Is The Difference Between An FHA Loan And A Conventional Mortgage?
- With an FHA insured loan it is possible to finance a purchase of up to 97.5% of the sales price.
- The FICO score requirement is lower for an FHA loan. Usually a conventional loan will require a 620 FICO score. FHA will allow you to have a FICO score as low as 500 but a larger down payment is required. Most lenders that we work with will allow a 3.5% downpayment with a score of 580 or higher.
- You can be two years out of bankruptcy or 3 years from a previous foreclosure.
- The down payment can come as a gift and the closing costs can be paid for by the seller or lender.
- You can use a cosigner to help you qualify.
- The loan can be assumed by a new buyer if you decide to sell your home at a later date.
- Some FHA loans allow you to borrow more than the purchase price to pay for repairs.
Many conventional lenders require at least a 680 – 700 FICO score if you want less than a 25% down payment. Most conventional loans now typically require anywhere from 10 to 30 percent down. Typically, conventional loans involve much stricter qualifying standards. Waiting times for bankruptcies and foreclosure are usually much longer with conventional loans.
The source of the down payment will usually be required to come from the borrowers own funds and usually the borrower must also have the funds to pay the closing costs. Often the borrower must have up to 6 months PITI in cash reserves after the close of escrow.
A disadvantage of the FHA loan is the upfront mortgage insurance (UFMIP) that is required. Conforming loans do not have upfront mortgage insurance. FHA loans also have annual mortgage insurance (MIP), while conventional loans have private mortgage insurance (PMI) which can be less than MIP.
Government House Loans do not normally require perfect credit or a large down payment unlike most conventional mortgage loans. Even if you happen to have less than stellar credit, you may be able to qualify for a low interest rate loan with as little as 3% or 5% down. With a conventional loan, if you have average credit there is also a low down payment option available but these usually have higher interest rates than FHA loans.
With an FHA loan, the upfront mortgage insurance can be financed into the loan and the annual fee becomes part of your monthly payment. All things considered, FHA loans are still considered a more attractive option as compared with conventional loans. With their easier qualifying standards and lower down payment requirements FHA loans are not just a better choice, but can often be an aspiring homebuyer’s only choice for obtaining a loan.
Can I Finance My Closing Costs? (How much out of pocket cost will I have?)
With an FHA loan, your closing costs usually cannot be financed into the loan amount. However, they can almost always be paid by the seller or the lender. FedHome Loan Centers can provide a lender rebate up to 2.75% ($28,000 maximum) toward your closing costs on a purchase transaction.
Your down payment doesn’t have to come from your own funds either. The down payment can come as a gift from a family member, employer or approved down payment assistance group. FHA loans also allow for a non-occupant cosigner to help the borrower qualify for the loan.
Non-traditional credit sources such as insurance, medical and utility payments can be used to help build credit history if traditional credit is unavailable. With an FHA refinance, you can significantly lower your monthly payment with no out of pocket costs and may even be able skip a monthly payment during the process.
I Have Bad Credit, Can I Use An FHA Home Loan?
FHA loans are not just for first-time homeowners. For those that qualify, an FHA loan is often a great low cost way for move-up buyers to get a safe and secure 15 year or 30 year fixed rate loan even if they happen to have damaged credit and/or not much money in the bank. Although not every borrower will qualify, the FHA program has lower qualifying standards (580 mid FICO score) than a conventional mortgage.
What Kind Of Property Can I Buy Using An FHA Home Loan?
FHA loans can be used to purchase or refinance a single family home, duplex, triplex, four unit property or condominium just as long as the borrower will be occupying one of the units.
FHA loans can be used to purchase a rehab “fixer-upper” property. FHA will allow you to borrow up to $50,000 to pay for repairs after you own the home.
Another advantage of an FHA loan is that it is assumable, which means if you want to sell your home, the new buyer can take over your loan. In the past, as interest rates decreased over time, most people weren’t interested in assuming someone else’s loan. However, in a time when interest rates are a record low, rates are likely to go up. In a few years, having an assumable loan could turn out to be a distinct advantage.
Just as it was designed to do in its inception during great depression, the FHA Insured loan program is helping Americans achieve the American dream of home ownership..
To find out more, contact a Government Loan Specialist by calling 877-432-LOAN (877-432-5626) today!
How To Apply For An FHA Home Loan
The first step in applying for an FHA home loan is to contact an approved FHA lender. FedHome Loan Centers is an approved broker for all types of government loan products including FHA insured loans.
One of our Government Loan Specialists can assist you every step of the way. An FHA loan is considered one of the easiest type of real estate loans to qualify for because it usually requires a low down payment and the borrower is allowed to have less-than-perfect credit.
FHA loans are not just for single family properties. You can also use an FHA loan to purchase or refinance a duplex, triplex, fourplex or condominium as long as the borrower will be occupying one of the units. FHA loans are not for investors or for the purchase of a vacation home.
In order to get the process rolling, you will need to provide your Loan Specialist with the following basic information:
- Borrower Address(s) (past two years)
- Social Security Number(s) (all borrowers)
- Employment Info (past two years)
- Current Paystub(s) (most recent month)
- Banking Statement(s) (past three months)
- Information about other real estate owned (if any)
- Federal W2’s (past two years)
- Federal Tax Returns (past 2 years), Income Statement and Business Balance Sheet (self employed only)
- Certificate of Eligibility ad DD-214 (veterans only)
- Pay for a credit report and FHA appraisal of the property
To qualify for an FHA loan, generally you must be able to satisfy the following criteria:
- Must have a steady employment history (the underwriters are looking for at least a two year history)
- Must have valid Social Security number, lawful residency in the U.S., and be of legal age to sign a mortgage in your State.
- Must have a minimum down payment of at least 3.5% to apply toward the purchase price (the down payment can be gifted by a family member and closing cost can be paid by the seller, lender or the borrowers employer up to 6% of the sales price).
- Mortgage payment (including PITI) needs to be less than 31% of your gross monthly income.
- Total monthly debt (mortgage, credit cards, auto, student loans, etc.) cannot be more than 43% of your monthly income.
- Must be at least two years out of bankruptcy, with good credit.
- Must be at least three years from a foreclosure, with good credit.
- Must have a minimum credit score of 580 (FHA-qualified lenders will use a case-by-case basis to determine an applicants’ credit worthiness).
How Many Times Can I Use An FHA Loan?
FHA loans are intended to provide assistance to low and moderate income wage earners helping them to take part in the joy and benefit of homeownership. The program is generally for a borrower to have one FHA loan at a time. However, there is no limit to the number of times a borrower can obtain an FHA loan.
Apply for a 2.75% lender rebate on your closing costs. Contact FedHome Loan Centers today and speak with a Government Loan Specialist by calling 877-432-LOAN (877-432-5626) or use the form above.