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FHA Loans is Right for you?
An FHA loan allows you to buy a house with as little as 3% down,
instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.
The FHA does not make home loans--it insures them. If a home buyer defaults, the lender is paid from the insurance fund. To get an FHA home loan, you'll need to have a good credit history, and sufficient income to qualify for the loan.
How Much FHA Loan Can You Afford?
For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.
Example.
Monthly income X .29 = Maximum PITI
For a monthly income of $3,000, that means
$3,000 x .29 = $870 Maximum PITI
Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income. Long term debt includes such things as car loans and credit card balances.
Example
Monthly income x .41 = Maximum Total Monthly Costs
For a monthly income of $3,000, that means
$3,000 x .41 = $1230
$1,230 total - $870 PITI = $360 allowed for monthly long term debt
The ratios for an FHA loan are more lenient than for a typical conventional loan. For conventional home loans, PITI expense cannot usually exceed 26-28% of your gross monthly income, and total expense should be no more than 33-36%.
Qualifying for an FHA Loan
- To obtain an FHA loan, you must have a credit background that shows you meet your obligations.
- You must have enough income to pay your monthly debt, as outlined on page 1.
- You must have enough cash to make a down payment at the time of closing.
- You must be able to pay the closing costs, which normally total 2-3% of the price of the home. These costs might include homeowner's insurance, attorney's fees, fees for a title search and title insurance, Private Mortgage Insurance if you are paying less than 20% down, the loan origination fee, and a fee that goes into the FHA insurance fund.
- You might also be paying 'points,' to the lender. Each point equals 1% of the cost of the home. Sometimes a seller will agree to pay your points, and sometimes points can be financed.
Buying a Home using a FHA Loan
The FHA loan program was created to help increase homeownership. The
FHA program makes buying a home easier and less expensive than other types of real estate
mortgage home loan programs. Some highlights of the FHA loan program are:
- Minimal Down Payment and Closing Costs.
- Downpayment less than 3% of Sales Price
- 100% Financing options available*
- Gift for downpayment and closing costs allowed.
- No reserves or required.
- FHA regulated closing costs.
- Seller can credit up to 6% of sales price towards buyers costs.
- Easier Credit Qualifying Guidelines such as:
- No minimum FICO score or credit score requirments.
- FHA will allow a home purchase two years after a Bankruptcy.
- FHA will allow a home purchase three years
after a Foreclosure.
- Easier Debt Ratio & Job Requirement Guidelines such as:
- Higher Debt Ratio's than other home loan programs.
- Less than two years on the job is allowed.
- Self-Employed individuals o.k.
These advantages of the FHA loan program has made it one of the best
options for most first time home buyers as well as move-up home buyers.
You do not have to be a first time buyer to obtain a FHA loan, anyone
may use a FHA loan as long as you do not have more than one FHA insured loan at any one
time.
FHA Single Family Home Loan Program
font face="Arial">FHA finances more Single family real estate
homes than most of the other types of properties combined. The basic single family
FHA loan is called a FHA 203(B) mortgage loan. FHA home loans
has the following type of guidelines for single family homes:
- FHA is for owner occupied homes only meaning you intend on living in
the property.
- Allowable Property Types are as follows:
- Single Family Real Estate Homes (SFR)
- Condo's - (approved condominium complexes less than 4 stories)*
- PUD's - (Public Urban Developments)
- There is no maximum sales price but there is a maximum loan amount
for this type of property.
- Any homebuyer may use the FHA loan (a common misconception is that
FHA is for first time buyers only) as long as they do not currently have another FHA
insured loan in their name, and if they do, it must be at a LTV of more than 75% of the
current value of the home.
- You may own other rental property that is not financed by FHA
and still use a FHA loan to purchase a primary residence.
- *Condos and Townhomes must be in HUD approved projects.
FHA will finance up to 97% of the value or purchase price of any of
this types of property for a mortgage refinace or when using the FHA loan program to buy a
home. The actual maximum loan amount will depend what state and county the property is
located.
FHA Loan Qualifying Summary
FHA loans are the easiest type of real estate mortgage loan to qualify for.
The FHA guidelines for loan qualification are the most flexible of all mortgage loans that
require less than 5% down payment.
Following is the basic FHA loan qualification guidelines.
- Two Years of steady employment, preferably with same employer.
- Last two years Income should be the same or increasing.
- Credit report should typically have less than two thirty day lates in
last two years.
- Bankruptcy's must be at least two years old, with good credit since.
- Foreclosure's must be at least three years old, with good credit
since.
- Your new mortgage payment should be approximately 30% of your gross
income.
These are some of the most basic of FHA guidelines for qualifying
for a FHA loan. If you have answered yes to most of these statements, you
probably qualify for a FHA mortgage loan.
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