FHA Home Loan Programs allow homebuyers to purchase properties with a low down payment and typically lower rates and fees.
The reason for this is that the FHA reduces the risk of the lender by providing them with insurance or a “guarantee” in the case where a homeowner fails to fulfill their obligation to make timely monthly mortgage payments and possibly defaults leading to foreclosure.
If you are looking to finance a home with one of FHA’s purchase home loans, we can help you determine your eligibility if you call 888-672-1015.
Purchasing a FHA Home
The FHA Home loan program was created in order to protect lenders and at the same time to help first time home buyers become homeowners by providing insurance to protect banks who lend to borrowers from any losses due to foreclosures and/or the borrower’s failure to keep up with their monthly mortgage payments. When situations like this happen, the Federal Housing Administration (FHA) will step in to help pay off the mortgage to the bank.
Giving the bank the guarantee that they are protected from circumstances like this, the bank sees less risk and more opportunities to lend out with lower qualification requirements.
The Benefits of The FHA Home Loans Program are:
- Low Down Payment – Even as low as 3.5% down payment, and the money used towards your FHA down payment can be a gift from a charity, employer or even just money from a family member.
- Credit / History – You do not need to have a perfect credit scores, and can even qualify for a new FHA loan recently after a short sale or within a few years of a bankruptcy or foreclosure.
- The FHA has many different options to help prevent foreclosures from occurring due to hard times for homeowners, allowing them to remain in their homes.
- The interest rates are extremely competitive due to the federal government’s insuring of the loans that helps in the protection for lenders.
An FHA home purchase loan can help you get your monthly mortgage payment down but you must be sure that you are eligible. For help determining if your home is eligible for an FHA home loan, contact BR Home Loans at 888-672-1015 today to talk about your FHA loan scenario.
Requirements Of FHA
The FHA (Federal Housing Administration) was established over 70 years ago as a part of the National Housing act of 1934, in order to help out homes that need improvement, especially after the Great Depression there were numerous home foreclosures and a huge drop in the housing market as well due to failure in the banking system.
Since 1934, the FHA has insured millions of home mortgages with a market share of 30% in 2010 vs 3% in 2007. Later in 1965 The FHA became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing. HUD is a division of the U.S. federal government, it is a program that President Lyndon Johnson set in place and was put into law in 1965.
The FHA Eligibility Requirements may include:
- A credit score of at least 530 (640 is preferred)
- 2 years of steady employment/income
- No bankruptcies within the past 12 months
- No foreclosures within the past 3 years
- The borrower must reside in the home as a primary residence
**If you do have a spouse as a co-signer, please keep in mind that their credit may be checked in the process of approval as well.
FHA-Approved Appraisal Required
An appraisal is required as well, but the appraisal must be ordered through a third party appraisal management company. During this process they usually look for repairs in conditions from minor defects, cosmetic defects to normal wear and tears.
The typical maximum LTV for an FHA loan is 96.5% for a purchase loan. This means that you will have to bring 3.5% of the sales price in as a down payment. However, if the property appraises for less than the sales price, then you’ll also have to bring in the difference.
Debt-to-Income (DTI) Ratio Requirements
There are two calculations. The first or Front Ratio is your housing expense-to-income ratio. This is your proposed mortgage payment PITI (principal, interest, taxes, mortgage insurance, and homeowners insurance) divided by your gross monthly income.
The second or Back Ratio is your total monthly obligations-to-income ratio. This is your gross monthly payment including Mortgage PITI divided by your gross monthly income.
FHA loan requirements include a maximum debt to income ratio.
FHA maximum debt to income ratio is usually 54.99%. Most lenders may limit maximum debt-to-income to under 50% and some lenders to 45%.
Employment Verification your most recent pay stubs, W2′s for the past 2 years and Tax Returns, however if you are self-employed or have been employed for less than 2 years the lender may ask for additional documentations such as; federal income tax statements and/or profit & loss statements.
Eligible Property Types
- 1-4 unit residences
- The borrower must live in the home
- Manufactured homes (mobile homes)
- Must be owner-occupied. This loan program may not be eligible for investment or rental properties.
You may be able to qualify for your second home for an FHA Home Loan if the first home is not already a primary residence and you do not already have an FHA Home Loan in place for that home.
**1-4 unit properties including condominiums are eligible; but please still check with your lender for manufactured housing eligibility.
Down Payment Requirements
The down payment for an FHA Home Loan is in most cases are considerably low compared to conventional mortgages. The minimum down payment for any FHA mortgage is usually 3.5% as opposed to at least 5% for conventional mortgages.
If you were looking to purchase a $300,000 home, the down payment required would then be $10,500 at a 3.5% down. The conventional loan requirement for down payments is normally at 5% which would be $15,000 down payment required, that is $4,500 that you can use towards repairs to keep up the maintenance or your home and even closing costs instead, helping you save more money for other costly expenses.