An FHA Loan is a mortgage loan insured by the Federal Housing Administration (FHA). The FHA does not provide the loan; rather, it insures the loan for the lender. If the borrower defaults, the lender can seek recourse from the FHA. This lowers the lender’s risk and makes them more likely to issue a loan.

One of the benefits of an FHA-insured loan is low mortgage rates. For single-family homes, down payments can be as low as 3.5 percent, making it possible to afford a higher-priced home than with a more conventional 10 or 15 percent mortgage. The FHA can also help home buyers finance their closing costs, and even offers mortgage insurance.

In addition, the FHA does not allow lenders to charge more than one percent for origination fees (what lenders charge for putting together loan documentation), and has no prepayment penalties, meaning that if you pay off the loan ahead of schedule, you won’t be penalized. As with other mortgages, the lender may ask you to pay points, which generally equals one percent of the total cost of the home.  Another advantage of an FHA loan is that it can be assumed by a qualified buyer.

As is customary with most loans, you’ll need to qualify for an FHA loan by meeting specific requirements, including:

  • A good credit record
  • Enough money for a down payment, which can be as low as 3.5  percent
  • Total housing costs that are no more than 29 percent of your gross monthly income. Therefore, if your annual household income is $60,000, your housing costs, including principal, interest, property tax, and insurance, should not exceed $17,400, or $1,450 per month

To obtain an FHA-insured loan, you need to find FHA-approved lenders and compare their loan offerings. Inquire about the income qualifications, which will vary by area. Also keep in mind that the maximum amount you can receive from FHA-insured mortgages varies from county to county, and from state to state. These mortgages are also subject to periodic improved adjustment, and that may be offered only in areas where residential real estate prices are high.

FHA Mortgage Q & A’s

What are the advantages of FHA Mortgage versus Conventional Loans?
FHA mortgage loans offer many benefits and protections that you won’t find in other loans including:

FHA Mortgages are Flexible
FHA mortgage loan requirements
aren’t completely score driven, though you will need a 640 FICO score or above to be approved through most lenders. FHA mortgage guidelines are more flexible than other loan programs, but there are still a few basic requirements that have to be met such as no late housing payments in the last year.

FHA Mortgages have Low Interest Rates and Low Mortgage Insurance
FHA Mortgage interest rates are usually better than other loan programs and they carry very low mortgage insurance costs.

FHA Mortgages Require a Smaller Down Payment
FHA Mortgages
have a low 3.5% down payment and the money can come from a family member, employer or charitable organization as a gift. Other loan programs don’t allow this.

FHA Offers More Protection to Keep Your Home
The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, the FHA has many options to help you keep you in your home and avoid foreclosure.

What factors determine if I am eligible for an FHA Loan?
To be eligible for an FHA Mortgage Loan, your monthly housing costs (mortgage principal and interest, property taxes, and insurance) must meet a specified percentage of your gross monthly income (31% ratio). Your credit background will be fairly considered. At least a 640 FICO credit score is sometimes required to obtain an FHA approval. You must also have enough income to pay your housing costs plus all additional monthly debt (43% ratio). These ratios can be exceeded somewhat with compensating factors.

What is the maximum amount that I can borrow?
The maximum amount for an FHA home loan is determined by:

Maximum Loan Amount: The maximum loan amount allowed for an FHA Mortgage varies from county to county. The highest maximum FHA Mortgage right now is $729,750. The lowest maximum FHA Mortgage amount available in any county is $271,050. To see what the limit is in the county in which you’re interested, visit the following site https://entp.hud.gov/idapp/html/hicostlook.cfm. This site lists U.S. territories as well as states.

Maximum financing: Depending on the state where the property is located, the maximum FHA Mortgage amount will be 97.75% of the appraised value of the home or its selling price, whichever is lower.

How much money will I need for the down payment and closing costs?
FHA Mortgage
Loans require the home buyer to invest at least 3.5% of the sales price in cash for the down payment and closing costs. If the sales price is $100,000 for example, the home buyer must invest at least $3,500. However, the home buyer can use gifts from family, funds from local, state or government agencies, or other sources for the down payment.

Can I get an FHA Mortgage after bankruptcy?
Criteria for FHA loan approvals
state that if you have been discharged from a Chapter 7 bankruptcy for two years or more, you are eligible to apply for an FHA mortgage. If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make an FHA loan application.

For more information on this program and other lending options, contact YourDenverMortgageGuy Dave Beckmann at 720-435-4022