FHA
How does FHA work?
What are rates for FHA and VA loans?
Rules for a FHA Loans
Do FHA loans require impound accounts?
Are FHA loans assumable?
Eligibility Requirements For An FHA Mortgage (1)
Which lenders offer FHA loans?
How does FHA work?
The U.S. Department of Housing and Urban Development offers a variety of loan insurance programs through the Federal Housing Administration which require approximately 3 to 5 percent cash down. FHA loan limits vary depending on the county where the property is located. FHA loans administered by HUD are originated by private lenders. For more information, contact lenders who offer FHA loans or a regional HUD office.
Resources:
"FHA Forms, Booklets and Publications," U.S. Department of Housing and Urban Development Printing Branch, Room B-100, 451 7th St., Washington, DC 20410; call (800) 767-7468.
What are rates for FHA and VA loans?
There are no set interest rates for FHA and VA loans. The FHA stopped regulating rates in 1983 and the VA followed suit soon after. Shop around for the best rate.
Rules for a FHA Loans
The U.S. Dept. of Housing and Urban Development offers a variety of loan insurance programs through the Federal Housing Administration, which requires approximately 3 to 4 percent cash down. There are no income requirements to qualify for a FHA mortgage. Other advantages are that FHA loans do not contain prepayment penalties and in some cases they are assumable by qualified purchasers.
FHA loan limits vary, depending on the county where the property is located. FHA loans are originated and serviced by private lenders. FHA does not lend money. The mortgage is made by a bank, savings and loan, mortgage company or other FHA-approved lender. In addition, FHA does not set the rates and points. The lender determines these, so it is best to shop around by calling several FHA-approved lenders.
Do FHA loans require impound accounts?
Yes, according to the "Realty Bluebook," 30th Ed., Dearborn Financial Publishing, Chicago; 1993: "Under FHA financing it is the lender's responsibility to ascertain that property taxes and hazard insurance premiums are paid when due. Lenders, therefore, will insist that the monthly payments include proportionate amounts for taxes and insurance."
Are FHA loans assumable?
Lenders will only permit those loans that have a "subject to transfer" clause to be taken over through a formal assumption process. Look to your loan agreement for specific terms. In addition, you should candidly discuss any risks with your lender, and possibly consult an attorney before signing the final agreement.
Eligibility Requirements For An FHA Mortgage
(1)
To be eligible for an FHA mortgage, borrowers must have a valid social security number. In addition, the property must usually be owner occupied by the borrowers. There are two exceptions to this rule: (1) a non-occupying co-borrower, meaning an immediate family member can go on the loan to assist with qualification and not need to live in the property. (2) a 203(k) property rehabilitation loan.
In some cases multiple FHA loans are allowable, but only under specific circumstances, such as increased family size, divorce, relocation and as a non-occupying co-borrower on multiple loans.
Property The property must conform to FHA guidelines. The process of confirming whether the property complies with FHA?s guidelines happens with the appraisal. During the appraisal, the value of the home is established (this must be the same or greater than the purchase price); the condition of the property is also evaluated. Generally speaking, homes that are purchased with the intent of fixing-up (meaning the home needs major repairs to be livable) do not make good candidates for an FHA mortgage. Condominium and town home projects must be FHA approved, (greater than 51% of the units must be owner occupied), to be eligible for an FHA mortgage. The loan amount cannot exceed FHA?s maximum loan limit for the county where the property is located.
Income Debt-to-income (DTI) ratios are calculated utilizing the income and debts of all borrowers. FHA standard DTI ratios are 29% for housing and 41% for housing and debt. The income must be verified and come from acceptable sources to be considered effective income by FHA. Effective income is income that can be used for qualifying for an FHA mortgage.
Examples:
- Salary or hourly wages The number of hours worked can be supported by a historical average or guaranteed hours.
- Overtime and bonus income This type of income can be considered effective with a sufficient history, typically two years, although on occasion an exception may be made at one year.
- Self-employment income In most cases a two-year history is required.
- Military, retirement or social security income
These are all acceptable sources of income, although it must be proven that the income will continue for a minimum of three years.
Alimony, child support or maintenance income Proof of receipt for at least the previous year is required; in addition, it must be proven that the income will continue for three years.
Down payment FHA is dedicated to helping homebuyers purchase a home with a minimum down payment. The down payment requirements are:
- 1.25% of purchase price, for homes under $50,000
- 2.35% of purchase price, for homes between $50,000 and $125,000
- 2.85% of purchase price, for homes over $125,000
You can receive 100% of your down payment as a gift or loan from an immediate family member, employer or grant from a non-profit organization. When you qualify for an FHA loan, there are certain cases where you can receive 100% of your down payment and closing costs as a gift that does not have to be repaid. This allows you to purchase a home with no money down.
Credit FHA does not have a credit score requirement. In cases where a borrower has not established traditional credit, alternate sources of credit can be used.
UnderwritingLenders now use automated underwriting when evaluating a borrowers loan application. This means that a computer program will have impact on determining loan approval. There are many situations where minimum guidelines can be exceeded and compensating factors can help with a manual loan approval.
Loan Programs FHA offers 15-year and 30-year fixed mortgage programs, as well as a 1-year adjustable rate mortgage. The 1-year adjustable is unique because the caps are set at 1% annually, and 5% for the life of the loan. Unless the borrower is putting at least 5% down, the loan approval on the adjustable mortgage is based on an interest rate 1% higher than the actual note rate.
For More Information order; "How to Qualify for an FHA loan" US Dept of Housing and Urban Development Printing Branch, Room B-100 451 7th Street Washington, DC 20410 (800) 767-7468
Which lenders offer FHA loans?
Lenders who handle Federal Housing Administration loans typically advertise in the Yellow Pages under "real estate loans" and in the real estate sections of newspapers. FHA also supplies limited lists of approved lenders. For general qualifications and program details, see the FHA brochure, "How to Qualify for an FHA Loan." To order, write the U.S. Department of Housing and Urban Development, Printing Branch, Room B-100, 451 7th St., Washington, DC 20410; (800) 767-7468.