FHA Loans
FHA stands for Federal Housing Administration. FHA loans are insured by the Department of Housing and Urban Development (HUD). When a loan is insured by HUD, it protects the lender from incurring damages due to an FHA loan defaulting.
The National Housing Act was signed by President Franklin D Roosevelt on June 27th, 1934. The Federal Housing Administration (FHA) was created by the Act. The (FHA) was created to help the housing Industry recover from the Great Depression. Originally, FHA was not intended to fund loans but to provide mortgage insurance to banks to protect banks against losses incurred by home loans. As a result, FHA allowed lenders to commit more funds to home mortgage loans. Today, FHA is the largest insurer of mortgages in the world.
FHA home loans are generally easier to obtain as their underwriting guidelines are more lenient than Conventional guidelines. To originate FHA loans, a lender must be approved through FHA.
Underwriters or Lenders use FHA's "four C's of underwriting" when evaluating FHA applications:
Credit History of the borrower
Capacity to repay the loan
Cash assets available to close the mortgage
Collateral, which evaluates the value of the home
Some General information about FHA Loans:
The Maximum Loan limit for FHA Loan change every year and are available at The US Housing and Urban Development webpage.
The Minimum Down Payment required for an FHA Loan is 3.5%. The Loan to Value (LTV) amount is 97.5%.
The Minimum Credit Score Required for FHA Loan is 580 FICO score that would allow a borrower to obtain loan with 3.5% Down Payment. A borrower must make a down payment of 10% if FICO Score is between 500-579.
There is no Reserve Requirement for FHA loan.
Up to 6% Seller Concessions are allowed on FHA Loans
A Non-Occupying Co-Borrower is allowed on FHA Loans
FHA Loans are Assumable with an FHA creditworthiness check.
Generally two years employment history needs to be verified, however FHA loans are less strict on employment. FHA loans are meant for people who have less than perfect credit and Income Qualifications.
Borrowers for FHA loans are Qualified two years after Chapter 7 Bankruptcy discharge and one year after Chapter 13 filing.
Borrowers with Prior Foreclosures are Qualified for FHA Loans three years after foreclosure.
An Appraisal always Required for a FHA Loan
Gift Funds are Allowed for Down Payment on FHA Mortgages.
The Maximum Debt to Income Ratio for FHA Loan is 31% / 43%
Unlike Conventional Loans that require a PMI, FHA mortgage requires an Upfront Monthly Mortgage Insurance (MMI). UFMIP is currently at 1.75% of the base loan amount.
85% maximum Loan to Value (LTV) is allowed on Cash-Out Refinances for FHA Loans
Owner Occupancy is required on FHA Loans and the owner must move in within 60 days of closing.
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