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FHA Loans

An FHA mortgage is a home loan that is insured by the Federal Housing Administration (against a loan default) and issued by a private mortgage company or bank. FHA loans are excellent for first time home buyers and at this time allow for the highest loan to value financing for purchase and refinance transactions.

The Federal Housing Administration was created by the Federal government and is an agency of the Housing and Urban Development. The FHA has the mandate of helping low income borrowers obtain mortgage financing with good terms and also offsetting risk to the lenders by insuring the mortgages. FHA is able to provide these benefits because of mortgage insurance charged on FHA loans. Only an FHA licensed broker can assist in obtaining an this type of loan from an FHA licensed lender.

Candidates for FHA mortgages must be able to fully document their income with W2's or tax returns, have decent credit for the last year, and generally have above a 580 FICO score, (there are exceptions to FICO scores if borrowers have compensating factors such as reserves or a solid work history). The mortgage amount must be within the loan limits for FHA mortgages -- these loan limits will vary by region and must be a primary residence in most cases (www.hud.gov). The borrower must be able to document a two year residence and work history. Any bankruptcy must have been discharged at least 2 years ago. Lastly they must have the appropriate qualifying ratios (monthly debts divided by monthly income). There are exceptions for these ratios, but generally the borrower/s must be below a 31% housing ratio and a 43% overall debt ratio.

If you plan on buying a home with an FHA loan, make sure the loan amount does not exceed federal FHA loan limits and calculate your debt to income ratio to make sure you are within guidelines. Try to avoid making any large purchase prior to your loan application and if possible pay down any debt that you can. FHA does not require assets, although assets may help in the event your ratios are excessive.

An FHA mortgage allows a homebuyer a low down payment and up to 6% seller concessions. The statutory required minimum investment is 3% of the purchase price. Most conventional loans that had previously allowed 100% financing (Fannie Mae, Freddie Mac and non-conforming lenders) have recently tightened their guidelines and now lend up to about 90% for purchases. Because second mortgages are now virtually capped at 85% loan to value FHA loans have become the most attractive loans that provide the maximum financing for mortgage financing. Homeowners looking to refinance can get up to 95% on a cash-out refinance and up to 97% on a no-cash refinance and purchase. There is mortgage insurance for approximately the first five years when the mortgage balance falls below 78% of the original purchase price.

Homeowners looking to refinance their non-FHA loans into an FHA can certainly do so. You do not have to have an FHA loan to refinance into an FHA loan. But, there is something called a streamline FHA refinance for homeowners who already are in this type of mortgage. The streamline refi is an abbreviated process requiring less paperwork and a faster turn time. In many cases you don't need to have a credit check or even an appraisal. The streamline refi is for non-cash out refinances only and are only available to homeowners who are current on their FHA mortgage.

Most property types are eligible for FHA financing including: single family dwellings, town homes, condos, and manufactured homes. FHA offers loan options including: 30 year fixed, 15 year fixed and various adjustable rate mortgages as well. They offer rehab loans to improve a property. FHA has "Energy Efficient Mortgages" which allow for greater purchasing power when buying or renovating a green home. FHA even offers reverse mortgages for homeowners over 62 who are looking to supplement their income. FHA does not guarantee any payment option arms or interest only loans. All FHA loan terms include principle and interest.

All in all, FHA is a fantastic home loan opportunity. For more information on FHA mortgages, call Envision Lending Group or Apply Now!