FHA Mortgage Loans

Information About FHA Mortgage Loans

FHA Mortgages are those underwritten by the Federal Housing Administration – a division of the Department of Housing and Urban Development (HUD). Through the FHA home mortgage program, the government insures home mortgages in an effort to increase home ownership. FHA mortgages are very commonly used by first time home buyers because they allow for lower down payment requirements as well as being more flexible and forgiving with credit requirements. As a point of clarification, this is not money that the government lends, but rather they insure the loans that are made by lenders provided that they meet the FHA guidelines.

Some Advantages of FHA Mortgages

Low Down Payment Requirements. Typically, you only need a 3.5% down payment for an FHA mortgage, AND that down payment can be in the form of a (qualified) gift.
Higher Allowances for Debt to Income Ratios. The debt to income ratio is an important factor to a lender. They want to know that your home payment and all of your other debt obligations do not exceed a certain percentage of your income. If you apply for a conventional loan, that ratio would be in the 36% range but with an FHA mortgage, you can stretch that to the 44% range allowing you to qualify for a larger home payment or to allow for more debt along with your house payment.
Flexible Credit Underwriting. With an FHA loan, an underwriter (the person who does the analysis to determine whether the loan should be approved) will look at your credit history among other things. You don’t need to have perfect credit to buy a home under the FHA guidelines, which means you can usually qualify with a lower credit score (as low as 580). In addition, if you have suffered a bankruptcy, short sale, or foreclosure, you will be able to be approved using an FHA mortgage much faster than with a traditional mortgage.

fha mortgage loans

Types of FHA Loans

This is more for informational purposes to let you know that there is more than one type of FHA program offered. If you see these programs listed anywhere, it should help you have a better understanding of what is relevant to your situation.

Section 203(b) – This is the most common type of FHA Loan.

Largest of FHA’s single family programs.

1-4 unit properties are eligible.

Flexible credit requirements.

3.5% down payment allowed (Call us to ask about the 1/2% down FHA loan program.)

Down payment may be a gift from specific sources.

Reserves not required.

Other FHA Loan Types include

Section 234(c)

Provides mortgage insurance for individual condominium units.

Credit, down payment, and limits of 203(b) apply.

In 2010, condominium complexes must be approved through HRAP/DELRAP to be eligible for FHA insurance.
Section 203(k) – Also known as an FHA Rehab Loan

Primary program for property rehabilitation.

Encourages community and neighborhood revitalization.

Only 1 mortgage loan is used for both the acquisition and the renovation.

1-4 unit properties including condominiums are eligible; check with your lender for manufactured housing eligibility.

Required improvements include cost effective energy conservation standards and smoke detectors.

Consultancy may be required.
HECM – Reverse Mortgages

FHA was the first to promote reverse mortgages nationally.

Allows access to equity in property with flexible terms.

Lump sum, monthly payments, line of credit, or a combination available.

Limited to homeowners 62 years of age and older.

FHA mortgage programs include more that what is listed here but these are the basics. Other programs include Streamline Refinance mortgage and a Streamline 203(k) for limited repairs. Recent legislation has helped FHA offer special programs with incentives to lenders for modifying and refinancing existing mortgages such as the “Making Home Affordable Program”.

When looking for a loan program to fit your specific needs, take a close look at FHA as their programs have become more attractive to both lenders and consumers.

With favorable loan terms, higher loan limits, 30 year fixed repayment terms, and flexible down payment options, FHA mortgages will continue to encourage home ownership, provide liquidity, and stability to the mortgage market.

Frequently Asked FHA Mortgage Questions

Q. What are the credit requirements for most FHA lenders?

The FHA mortgage credit requirements are the most lenient of all home mortgage programs. We can often work with borrowers with middle FICO scores as low as 580 but rather than just looking at a score, we like to look at the full financial picture of a home buyer prospect. In some cases, we can help a client raise their credit score with a few simple steps. It’s best to contact us so we can learn more about your personal situation and create a road map to home ownership for you.

Q. How much can I afford?

By providing your mortgage professional the required documentation, a detailed analysis will be provided that includes your maximum loan amount.

Q. How will I know if the condo/townhome I want to buy is eligible for FHA financing?

Your real estate agent – working with your lender – should be able to assist you in determining eligibility. There is also a link to the HUD website, which will allow you to do a search: CLICK HERE