• FHA Loans

  • What is an FHA Loan?

    An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+. However, borrowers must pay mortgage insurance premiums, which protects the lender if a borrower defaults. Borrowers can qualify for an FHA loan with a down payment  of 3.5%.

    FHAlogo

    The FHA program was created in response to the rash of foreclosures and defaults to provide mortgage lenders with adequate insurance and to help stimulate the housing market by making loans accessible and affordable for people with less than stellar credit or a low down payment. Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments. FHA Loan Requirements For borrowers interested in buying a home with an FHA loan with the low down payment amount of 3.5%, applicants must have a minimum FICO score of 580 to qualify. The credit score and down payment amounts are just two of the requirements of FHA loans. Here’s a complete list of FHA loan requirements, which are set by the Federal Housing Authority:

    • Borrowers must have a steady employment history or worked for the same employer for the past two years.
    • Borrowers must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state.
    • Borrowers must pay a minimum down payment of 3.5 percent. The money can be gifted by a family member.
    • New FHA loans are only available for primary residence occupancy.
    • Borrowers must have a property appraisal from a FHA-approved appraiser.
    • Borrowers must have a minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent.
    • Typically borrowers must be two years out of bankruptcy and have re-established good credit.
    • Typically borrowers must be three years out of foreclosure and have re-established good credit.
    • The property must meet certain minimum 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).

    Benefits of FHA Loans: Low Down Payments and Less Strict Credit Score Requirements

    Typically an FHA loan is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. For FHA loans, down payment of 3.5 percent is required for maximum financing. Borrowers who cannot afford a 20 percent down payment, have a lower credit score, or can’t get approved for private mortgage insurance should look into whether an FHA loan is the best option for their personal scenario. Another advantage of an FHA loan it is an assumable mortgage which means if you want to sell your home, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.

    Mortgage Insurance is Required for an FHA Loan You knew there had to be a catch, and here it is: Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront -– or, it can be financed into the mortgage –- and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.

    Upfront mortgage insurance premium (UFMIP) — Appropriately named, this is a one-time upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.

    Annual MIP (charged monthly) — Called an annual premium, this is actually a monthly charge that will be figured into your mortgage payment. The amount of the mortgage insurance premium is a percentage of the loan amount, based on the borrower’s loan to value (LTV) ratio, loan size, and length of loan.

    How Long Do Borrowers Have to Pay FHA Mortgage Insurance?

    The duration of your annual MIP will depend on the amortization term and LTV ratio on your loan origination date:

    • For loans with FHA case numbers assigned on or after June 3, 2013:

    Borrowers will have to pay mortgage insurance for the entire loan term if the LTV is greater than 90% at the time the loan was originated. If your LTV was 90% or less, the borrower will pay mortgage insurance for the mortgage term or 11 years, whichever occurs first.

    Term Loan-to-Value (LTV) Ratio Duration
    15 years or less 78% or less 11 years
    15 years or less 79-89% 11 years
    15 years or less 90% or higher Full loan term
    Over 15 years 78% or less 11 years
    Over 15 years 79-89% 11 years
    Over 15 years 90% or higher Full loan term

    FHA Loan Limits

    The Federal Housing Authority sets maximum mortgage limits for FHA loans that vary by state and county. In certain counties, you may be able to get financing for a loan size up to $729,750 with a 3.5 percent down payment. Conventional financing for loans that can be bought by Fannie Mae or Freddie Mac are currently at $625,000.

    How Do You Get an FHA loan?

    A lender must be approved by the Federal Housing Authority in order to help you get an FHA loan. You find FHA lenders and shop for mortgage quotes for an FHA loan quickly and easily. Just submit a loan request and you will receive custom quotes instantly from a marketplace filled with hundreds of lenders. The process is free, easy and you can do it anonymously, without providing any personal information. If you see a lender’s loan quote that you are interested, you can contact the lender directly.

     Questions? – Call Jim Steen Loan Originator Jax Office 904-332-7807 or Cell 904-200-0225