FHA loans are mortgages that are granted by the Federal Housing Administration (FHA) to purchase or refinance one to four unit owner-occupied residential properties, condominiums, and manufactured homes. This type of loan is also perfect for first-time home buyers as the guidelines are not too strict, but can be used for anyone who qualifies under FHA requirements. These loans are not actually funded by the FHA, but are instead a guarantee that the loan will be repaid in case the borrower defaults. Unlike most traditional loans, FHA continues to thrive in the housing market even in these hard economic times.
FHA loans are extremely popular among first-time home buyers. After the economic crisis, and the meltdown of the mortgage market, it has become even more difficult for first-time home buyers to qualify for a mortgage. Even so, FHA loans are still much easier loans to secure than regular conventional mortgages. As long as you don’t have another mortgage already and you meet the proper requirements, you should be able to get approved for an FHA loan with ease.
This type of loan is one of the more lenient mortgages when it comes to credit as they can be very understanding of certain financial situations. After a bankruptcy, an FHA loan can be secured just 2 years after it was declared. However, if you had any federal liens, like tax liens or defaults on student loans, then you will not be eligible for an FHA loan. When putting down a minimum of 3.5%, your credit score needs to be at least 620. This definitely beats other conventional loans that require a minimum credit score of 720 or higher for prime rates.
FHA loans have very easy requirements for almost all factors, but one of their best advantages over conventional loans is the low amount needed at closing. Because most first-time home buyers don’t have the funds to put down at least 20% at closing, FHA loans only require at least 3.5% at closing.
FHA loan rates are very competitive rates and this will equate to lower payments every month when you pay your mortgage payments. With lower interest rates, you will pay less over the life of the mortgage. This type of loan offers very close, if not the same rates as a traditional 30-year fixed loan.
The FHA mortgage is without a doubt the most lenient when it comes to who they will lend to. As long as credit requirements have been met, 3.5% down payment, and steady employment, you most likely will not be denied. The FHA applications can be a much easier process than traditional conventional loans.
Debt to Income
The FHA allows a high debt-to-income ratio. If you have a loan on a car, student loans, or credit cards, you may still be able to qualify. Maybe you’re in a situation where you know you’re going to get a raise later in the year, but you want to apply for the loan now. Perhaps you know that your car loan will be paid off in about 6 months. As long as you believe you can afford the payment, the FHA may allow a 50 percent debt-to-income ratio. This is determined by adding up all of your debt, including your proposed new mortgage payment, and dividing it by your monthly income to receive a percentage.
Who benefits from FHA loans?
-First-time home buyers
-People just coming out of renting for years
-Those who have just recovered from a long term credit munchers like foreclosures and bankruptcies
-People with lower credit
-Someone who needs to refinance
FHA’s Flexibility: Refinance Benefits from FHA
Aside from the typical first-time home buyers, someone needing to refinance a mortgage can benefit from FHA loans as well. Current guideline changes permit for a cash out refinance of up to 85% of the appraised value of the home. With all of the recent decrease in values of properties, it’s probably worth it to refinance a mortgage in order to decrease the value of your interest rates without getting funds back. FHA allows for up to 95% of appraised value. This deal has the same credit score requirement of 620 with most banks funding FHA loans. If a refinancing homeowner already has an FHA loan on the property, he or she can do an FHA Streamline loan. This loan does not require a reappraisal of the property or pre-qualifying for the loan if he proves that he has had a clean payment history.
Types of FHA Loans Available
-30 year fixed rate
-15 year fixed rate
-A few adjustable rate programs are available
-203k purchase loan- used for renovation of the property that’s being bought
-100% FHA Loan For Building Rural Areas
There are lots of reasons to ask your lender for an FHA loan instead of taking a conventional or an expensive and risky sub-prime mortgage loan. Why not take advantage of the many benefits and protections that only come with FHA:
1. Easier to Qualify – Because FHA insures your mortgage, lenders are more willing to give loans with lower qualifying requirements so its easier for you to qualify.
2. Less than Perfect Credit – Even if you have had credit problems, such as bankruptcy, its easier for you to qualify for an FHA loan than a conventional loan.
3. Low Down payment – We have a low 3% down payment, and that money can come from a family member, employer or charitable organization. Other loans don’t allow this.
4. Costs Less – Many times, FHA loans have competitive interest rates because the loans are insured by the Federal Government. Always compare an FHA loan with other loan types.
5. Help You Keep Your Home – The FHA has been around since 1934 and will continue to be here to protect you when the others walk away. Should you encounter hard-times after buying your home, FHA has many options to help keep you in your home and avoid foreclosure.
There is more to buying your home then the monthly house payment. Why not ask for an FHA loan that will help you buy your house and keep it too? Tell your lender you want an FHA loan for all the reasons above- FHA is a wise choice.