An FHA loan is a mortgage loan that is insured by the
U.S. government. Since the government insures the
mortgage loan, lenders will be more willing to give out
loans under more difficult situations. With an FHA loan,
the government doesn’t’ actually give you the mortgage
loan, a lender does (lenders can be institutions like
banks or mortgage brokers). Any money used to pay for
the home will come from the lender, not the US
government. The government simply insures the loan so
that lenders will give out more loans, since they know
that if a borrower can’t pay the loan, the government
will step in and over it.
The “FHA” stands for the Federal Housing Administration,
a government agency which is itself a part of the
Department of Housing and Urban Development (HUD). FHA
was created in 1934 as a direct result of the Great
Depression. During the Great Depression, millions of
Americans were unable to make payment on their debts,
the banking system failed, and millions of homes were
foreclosed.
To combat the growing problem of indebtedness and a lack
of homeownership during this period, the United States
government set up the FHA, which was designed to provide
families with loans so that they could purchase a home.
The Great Depression ended in the late 1930s, and since
then FHA loans have been used basically for the same
purpose: to provide low and moderate income families
with affordable housing. FHA loans are also great for
first time home buyers, for qualified buyers that want
to put less than 10% down and for borrowers with less
than perfect credit.
-
Lower Credit Score
Requirements
(in some cases as low as 530 Credit Score).
-
Lower Down Payment
Requirements for Purchases
(as low as 3% down)
-
Higher Loan to Value
Ratios for Refinances
(FHA loans can go up to 97% of the value of the
home).
-
Homeowners that owe
more on the house than it is worth and would like
their principle balance reduced with an FHA Short
Refinance.
-
And finally
homeowners that would like the interest rate reduced
on their current FHA loan through an FHA Streamline
Refinance.
In order to qualify for an FHA loan that home has to be
owner occupied.
(*FHA doesn’t allow 2nd homes
*FHA only allows investment properties for refinancing,
not purchase and only if the property is currently in an
FHA loan and then it will be a streamline).
Please call us to go over FHA Streamline Loans. For
clients that currently have FHA loans this is an
incredible option to lower your interest rate with no
appraisal and no out of pocket costs. It is literally a
streamlined loan to lower your rate and payment!
Also the borrower has to qualify "Full Doc" (meaning
with Full Disclosure of their Income including
Supporting Documentation such as 2 years worth of W2's,
Tax Returns and or Pay Stubs).
County limits for FHA loan limits were recently raised.
Please research the FHA limits in your county or call us
and we will let you know.
FHA loans were initially meant for people affected by
the Great Depression. These days, most individuals who
get FHA loans are interested in the lower down payment,
the lower Credit Score Requirements, Flexible first time
home buyer programs, to Reduce the Principle Loan
through an FHA Short Refinance or to streamline and
reduce the interest rate on their existing FHA loans.
If you meet these criteria, then an FHA loan may be
right for you.
If you are interested in an FHA loan here is what your
income, credit, loan amount and cash reserves should be:
Income
– Your income can be relative low, but more importantly
it should be steady for the past 2 years. If not the FHA
might still insure your loan. But proving a steady
source of income is always beneficial. Another nice
thing about FHA loans is that you can add as many Non
Occupant Co Borrowers as you need to qualify for the
income requirements. The income has to be Full
Documentation (see that attachment on Full Doc for more
info).
Credit
– Most people who get an FHA loan have credit that
doesn’t meet prime pricing requirements. FHA will take
scores as low as 580 and even 530 in certain cases. FHA
loans are based on Case by Case basis. But FHA loans are
just as good a choice for people with 800 FICO scores
and that are attracted by the high LTV limits and or the
Principle Reduction opportunity through the FHA Short
Refinance.
Loan Amounts – FHA loan amounts are based on your county limits. The limits were
raised recently so check with your county or call us and
we will let you know.
Cash Reserves – It would be best if the borrower had cash reserves that exceeded
the 3% down payment that FHA requires. To figure out
what your down payment will be, just take the price of
the house you wan tot buy and multiply it by 3%.
If you think that an FHA loan may be right for you and
could help you refinance or purchase a property, please
call or email us to go over all of your options in
detail.
