Welcome to the FHA Home Loan Guide
What is an FHA Loan?
Home ownership rates in America continue to increase at a steady rate due in a large part to the implementation of FHA home loans more than seventy years ago. Over the years, FHA has helped Americans gain the financial independence that comes with owning a home. By creating jobs and reasonable mortgage rates for the middle class, financing military housing, and producing housing for the low income and the elderly, FHA has helped Americans become some of the best housed people in the world with over 73 million Americans currently owning their own homes. Statistics show that by 2008, home ownership rates in the U.S. have climbed to nearly 70 percent.
HOW IT WORKS
By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines.
FHA loans benefit those who would like to purchase a home but haven't been able to put money away for the purchase, like recent college graduates, newlyweds, or people who are still trying to complete their education. It also allows individuals to qualify for a FHA loan whose credit has been marred by bankruptcy or foreclosure.
NUTS AND BOLTS
The most popular FHA home loan is the 203(b). This fixed-rate loan often works well for first time home buyers because it allows individuals to finance up to 97 percent of their home loan which helps to keep down payments and closing costs at a minimum. The 203(b) home loan is also the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit, or government agency.
Insurance on FHA mortgages are often rolled into the total monthly payment at 0.5 percent of the total loan amount which is roughly half of the price of mortgage insurance on a conventional loan. After five years or when the loan balance reaches 78 percent, the additional mortgage insurance is typically met and therefore drops off the total monthly payment.
GUIDELINES
It is not necessary to meet a minimum income requirement in order to qualify for a FHA loan but debt ratios specific to the state in which the home will be purchased have been put into place to prevent borrowers from getting into a home they cannot afford. This is done through a close analysis of income and monthly expenses
FHA Loan Types
Adjustable Rate Mortgages
The FHA adjustable rate mortgage is a HUD mortgage specifically designed for low and moderate-income families who are trying to make the transition into home ownership.
Fixed Rate Mortgages
An FHA loan benefits those who would like to purchase a home but haven't been able to put money away for the purchase, like recent college graduates, newlyweds, or people who are still trying to complete their education.
Energy Efficient Mortgages
The Energy Efficient Mortgage program (EEM) helps current or potential homeowners significantly lower their monthly utility bills. It allows them to incorporate the cost of energy efficient improvements into their new FHA home loan or FHA refinancing loan.
Graduated Payment Mortgages
Graduated Payment Mortgages are FHA loans for homebuyers who currently have low to moderate incomes but expect them to increase substantially over the next 5 to 10 years.
Mortgages for Condominium Units
FHA Condominium Loans are specifically designed toward those who purchase housing units in a condominium building.
Growing Equity Mortgages
FHA Section 245(a) allows those who currently have a limited income, but expect that their monthly earnings will increase, to purchase a home with the help of a Growing Equity Mortgage in which payments start small and increase gradually over time
Important Facts: FHA Mortgage Guidelines
Mortgage Insurance
FHA insured loans require mortgage insurance to protect lenders against losses that result from defaults on home mortgages.
FHA mortgage lending limits vary based on a variety of housing types and the state and county in which the property is located.
Your Loan Checklist
Before you start the loan process, you'll want to be prepared for the loan application. Have your information organized and ready for your loan officer. Be prepared to pay for property appraisal and a credit report.
Closing Costs
While FHA defines which closing costs are allowable as charges to the borrower, the specific costs and amounts that are deemed reasonable and customary are determined by each local FHA office.
Debt to Income Ratios
In order to prevent homebuyers from getting into a home they cannot afford, FHA guidelines have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios.
Credit Issues
An FHA loan applicant's past credit performance that demonstrates good credit history and a solid track record of timely payments will likely be eligible for the mortgage.
