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Federal Housing Administration or FHA mortgage loans is a government program administered by Housing and Urban Development (HUD) to help Americans who can't qualify for a conventional mortgage loan become homeowners. To obtain an FHA mortgage loan, one must meet the following requirements: Income Requirement to Qualify for an FHA Mortgage Loan: There is no minimum income requirement to obtain an FHA mortgage loan; however, one must prove steady income for at least three years, and demonstrate that you've consistently paid your bills on time. Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as income as long as they are steady. Debt-to-Income Ratio: The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. [With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing expenses and other debt.] You may qualify to exceed this ratio if you have: (1) A large down payment; (2) A demonstrated ability to pay more towards your housing expenses; (3) Substantial cash reserves; (4) Net worth enough to repay the mortgage regardless of income; (5) Evidence of acceptable credit history or limited credit use; (6) Less-than-maximum mortgage terms; (7) Funds provided by an organization; and / or (8) A decrease in monthly housing expenses Down Payment: You must have a down payment of at least 3% of the purchase price of the home. [Most affordable loan programs offered by private lenders require between a 3% - 5% down payment, with a minimum of 3% coming directly from the borrower's own funds.] Besides your own funds, you may use cash gifts or money from a private savings club. If you can do certain repairs and improvements yourself, your labor may be used as part of a down payment (called "sweat equity"). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash. Credit Score: The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if (1) two years have passed since a bankruptcy has been discharged; (2) all judgments have been paid; (3) any outstanding tax liens have been satisfied; (4) arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue; or (5) three years have passed since a foreclosure or a deed-in-lieu has been resolved. You can qualify for an FHA loan without a credit history. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details. Closing Costs: Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan. The FHA requires a single, up-front mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing. This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%. |
Are FHA Mortgage Loans Assumable? You can assume an existing FHA-insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is streamlined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. You must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new mortgage loan. What is a 203(b) loan? This is the most commonly used FHA program. It offers a low down payment, flexible qualifying guidelines, limited lender's fees, and a maximum loan amount. What is a 203(k) loan? This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows: --The home must be at least one year old. --The cost of rehabilitation must be at least $5,000, but the total property value-including the cost of repairs-must fall within the FHA maximum mortgage limit. --The 203(k) loan must follow many of the 203(b) eligibility requirements. --Talk to your lender about specific improvement, energy efficiency, and structural guidelines. How to obtain an FHA Loan: Contact any lender such as a participating mortgage company or bank. |
Federal Housing Administration or FHA mortgage loans is a government program administered by Housing and Urban Development (HUD) to help Americans who can't qualify for a conventional mortgage loan become homeowners. To obtain an FHA mortgage loan, one must meet the following requirements: Income Requirement to Qualify for an FHA Mortgage Loan: There is no minimum income requirement to obtain an FHA mortgage loan; however, one must prove steady income for at least three years, and demonstrate that you've consistently paid your bills on time. Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as income as long as they are steady. Debt-to-Income Ratio: The FHA allows you to use 29% of your income towards housing costs and 41% towards housing expenses and other long-term debt. [With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing expenses and other debt.] You may qualify to exceed this ratio if you have: (1) A large down payment; (2) A demonstrated ability to pay more towards your housing expenses; (3) Substantial cash reserves; (4) Net worth enough to repay the mortgage regardless of income; (5) Evidence of acceptable credit history or limited credit use; (6) Less-than-maximum mortgage terms; (7) Funds provided by an organization; and / or (8) A decrease in monthly housing expenses Down Payment: You must have a down payment of at least 3% of the purchase price of the home. [Most affordable loan programs offered by private lenders require between a 3% - 5% down payment, with a minimum of 3% coming directly from the borrower's own funds.] Besides your own funds, you may use cash gifts or money from a private savings club. If you can do certain repairs and improvements yourself, your labor may be used as part of a down payment (called "sweat equity"). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash. Credit Score: The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if (1) two years have passed since a bankruptcy has been discharged; (2) all judgments have been paid; (3) any outstanding tax liens have been satisfied; (4) arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue; or (5) three years have passed since a foreclosure or a deed-in-lieu has been resolved. You can qualify for an FHA loan without a credit history. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details. Closing Costs: Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan. The FHA requires a single, up-front mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing. This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%. |
Federal Housing Administration FHA Mortgage Loans |
Mortgage Loans > FHA Loans |
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