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FHA
Loans
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What
are FHA Loans?
(FHA) loans are not loans at all. The Federal Housing Administration
insures loans so that lenders can offer mortgage assistance
to people who: |
- Have
fair or poor credit
- Don't
have a 20% down payment, FHA requires only 3.5%
|
The
federal government insures loans that lenders reduce their
risk of loss if they lend to borrowers who could default
on their mortgage payments. FHA loans have helped military
families who return from war, the elderly, handicapped,
or lower-income families, but really, anyone can get an
FHA loan - they are not just for first-time home buyers.
Qualifying for an FHA |
 |
Must
have steady employment history, or worked for the
same employer for the last 2 years. |
|
Must
have valid Social Security number, lawful U.S. residency,
and be of legal age to sign a mortgage. |
|
Must
make a minimum down payment of 3.5% which can be gifted
by a family member |
|
Must
have a property appraisal from an FHA-approved appraiser
(the lender schedules this in escrow). |
|
Monthly
mortgage payment needs to be less than 31% of your
gross monthly income. This includes: |
|
| ***
(When you are approved for your loan and ready to visit
houses, I will calculate estimated monthly payments so we’re
only seeing homes you qualify for. Less window shopping
means you’ll be in a home sooner, and neither your
time or hard-earned money will be wasted with escrows that
won’t close. Included in your monthly payment: PITI
(Principal, Interest, Property Tax, Homeowner’s Insurance,
Fixed Assessments (added to Property Tax), Mortgage Insurance,
HOA Fees, any other misc. fees.) |
|
Monthly
debt cannot be more than 43% of your monthly income.
This includes Mortgage Payment, Credit cards, Auto
loan, Student loans, etc. |
|
No
minimum requirement for credit scores, but past credit
performance will be scrutinized. FHA-qualified lenders
will use a case-by-case basis to determine an applicants'
credit worthiness. |
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Must
be 2 years out of bankruptcy, with good credit. |
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Must
be 3 years out of foreclosure, with good credit. |
|
| Lenders
typically require 45 days or more to close a VA loan. To
compete with conventional and cash offers, find a lender
who routinely closes VA loans in 30 days. |
What's
the catch?
1. Mortgage insurance. But, that’s
a small price to pay when you can make a down payment of
only 3.5%, or your credit is poor, or you had a bankruptcy
or foreclosure. An FHA loan enables you to buy real estate
anyway. So, what is mortgage insurance? Here it is explained: |
| UFMIP |
Up-Front
Mortgage Insurance Premium - an obligatory payment;
you can either pay this in full upfront, or, it can
be financed into the loan.
The borrower pays a premium of 1.75% of the home loan,
regardless of their credit score.
Example:
$300,000 loan x .0175% = $5,250
This sum can be paid upfront at closing
as part of the settlement charges or can be rolled
into the mortgage. |
| MMI
|
Mutual
Mortgage Insurance - the annual premium remitted on
a monthly basis. This is actually a monthly charge
that’s figured into your mortgage payment. It
is based on a borrower's loan-to-value (LTV) ratio
and length of loan.
There are two different Annual MIP
values:
LTVs less than or equal to 95%, a
borrower will pay 0.50%.
Example: $300,000 loan x .005 = $1,500
$1,500 ÷ 12 months = $125 Your monthly premium
LTVs above 95% annual premiums will
be .55%
Example: $300,000 loan x .0055 = $1,650
$1,650 ÷ 12 months = $137.50 Your monthly premium
|
|
| To
understand when you will stop paying mortgage insurance:
|
| |
15-30-
years Loans MIP drops off when remaining balance on
loan is 78% of the value of the property
or after 5 years (in most cases) - whichever is longer.
0-15-
years Loans with LTV ratios of 90% or more MIP stops
when LTV ratio reaches 78%
0-15- years Loans with LTV ratios of 89.99% and less
You will not be charged MIP |
|
2.
Property needs to meet certain standards at appraisal.
If the home you are purchasing does not meet these standards
and a seller will not agree to the required repairs, your
only option is to pay for the required repairs at closing
(to be held in escrow until the repairs are complete). Some
sellers, especially banks, will not consider this option.
How to Get an FHA Loan
1. Contact several lenders and ask them if they originate
FHA loans.
A lender who routinely closes FHA loans in 30 days will
allow you to compete with conventional loan offers. Most
lenders require 45 days to close an FHA loan, or longer.
2. Your lender assesses the prospective home buyer for risk.
In other words, your lender will pre-qualify you. This enables
you to know what type of home can be afforded based on monthly
income and expenses.
Factors include: Your income to debt ratio (how much comes
in - how much goes out = what’s left to pay for your
home) Payment history on other debts 3. Submit Offers on
homes that fir qwithing loan qualification guidelines. |
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