FHA Loan PlusFHA 203b Loan Program
A
FHA 203(b) loan is a federally backed mortgage that's insured by the
Federal Housing Administration (FHA). The Federal Housing Administration
is an agency within the Housing and Urban Development(HUD). Since 1934,
the FHA has been the world's biggest mortgage insurer, insuring approximately
34 million homes. Originally established to regulate interest rates
and mortgage terms, the agency now enables approved banks and mortgage
companies to make loans on a continuous basis without putting up significant
capital of their own. The FHA does not loan money directly to the borrower,
but works with lenders who provide the mortgage financing.
What Are The Borrower Eligibility Requirements For an FHA loan?
Down payment: The minimum down payment
for a one to four family owner occupied home is just 3.5% for applicants
with a credit score of 580 or higher.
Credit Scores: The minimum credit score for
an FHA loan is 500, however, loans with a credit score below 580 require
a 10% down payment. Lenders are permitted to exceed the minimum credit
score and set their own base credit score.
Qualifying Standards: Because of the backing
by the federal government, lenders are typically more lenient than conventional
loans that are not supported by the federal government.
Documentation: FHA lenders require full documentation
for loan approval, such as proof of income, assets and bank statements,
and debt loads. FHA mortgages also require borrowers to have a valid
Social Security number, reside in the country legally (but citizenship
isn't required), and provide any other necessary financial documentation.
Mortgage Loan Limits: Borrowers must pay special
attention to key FHA mortgage limits. These loan limits vary depending
on state and county location, as well as the housing-type category.
This strict mortgage limit can commonly become a deciding factor in
FHA loans.
Mortgage
Insurance Premiums: FHA home loans have an upfront premium set
as a percentage of the home loan, which depends on the type of mortgage
transaction. Mortgage insurance is a policy that protects lenders from
losses caused by mortgage defaults. FHA mandates upfront and yearly
mortgage insurance for all borrowers, regardless of down payment size.
Purchase loans and qualifying refinance premiums cost 1.75 percent of
the loan amount. There are also annual premiums which vary based on
the term and loan to value of the FHA loan. The annual mortgage insurance
(MIP) premium is collected monthly as part of the mortgage payment.
All home buyers and homeowners who are refinancing their current mortgage
to pay a funding fee to HUD. The funding fee/mortgage insurance is used
to reimburse lenders for bad loans.
Key FHA Loan Benefits
Low Down Payment Requirements: Borrowers
can look forward to owning a home sooner with FHA's low down payment
requirement of 3.5 percent.
Non-Traditional Credit: Depending on the FHA
mortgage lender, borrowers may be able to utilize non-traditional credit.
Such documentation can include utility bills, car insurance paperwork,
phone bills, and retail store credit accounts
Compensating Factors: One of the beauties
of FHA loans is the use of manual underwriting. This is a significant
advantage for borrowers as common-sense underwriting is used in addition
to regular FHA guidelines. Compensating factors can include strong reserves
(assets) and larger down payments. (i.e., if your debt-to-income ratio
is weak, you might qualify by presenting a 10 percent down payment and
12 months worth of assets in banking reserves).
Bankruptcy and Foreclosures: These specific
financial hardships will not automatically disqualify loan applicants
in a FHA loan. Borrowers with a previous bankruptcy may still qualify
if they've maintained a clean history for at least 2 years from the
date of discharge. It's 3 years for homeowners with a previous foreclosure.
Non-occupant co-borrowers & co-signers:
To help with specific issues such as income requirements, non-occupant
individuals may be eligible for consideration in the application of
a FHA loan. Typically, FHA mortgage lenders require these non-occupying
borrowers to be direct relatives or individuals with a history of significant
relationship.
No Prepayment Penalties, Teaser Rates: As
previously mentioned, FHA home loans are distinctly different from subprime
loans. FHA borrowers will not be shocked by adjusting interest rates,
or inescapable prepayment penalty fees.
How Can You Obtain an FHA Loan?
Note that FHA itself does not generate loans. They just insure loans from selected private lenders instead. The first step to get an FHA loan is to find a mortgage loan or broker authorized by FHA. Since these lenders may fix their own rates and conditions, it is essential to buy a number of lenders to get a variety of offers. The mortgage lender will have to qualify you under certain credit criteria after it has been determined. In future it will be as easy as most other mortgages to get your FHA house loan.
Who Are Good Candidates for FHA Mortgages?
Key candidates for FHA loans include:
- First Time Home Buyers,
- Low-to-Moderate Income Families,
- Borrowers with Less-than-Excellent Credit
- Potential Home Buyers with Small Down Payments
- Borrowers with Previous Bankruptcies or Foreclosures
To help these select individuals, FHA loans offer low down payments, low closing costs, easier qualifying standards, and competitive interest rates.