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FHA LOAN GUIDELINES

FHA Loans Guidelines

FHA Loans are backed by the Department of Housing and Urban Development and typically used by first time homebuyers with little to no money available for a down payment. FHA Funding can also be used to build, repair, refinance, or purchase a new home although some lenders may have restrictions on which loan programs they offer.  FHA loans are available in all 50 states as well as the Virgin Islands, Western Pacific, and Puerto Rico. General FHA guidelines are the same throughout eligible lending areas. Check with your lender to see if they will lend in your area.

There are two different types of FHA loans. There is the 203B program used to purchase existing homes in liveable conditions and a 203k loan used to purchase a home and renovate the property. These loans are catered to more of a average household income where a large down payment is not available. These loans are financed by lenders and banks and are insured through the Department of Housing and Urban Development.

FHA does not have a minimum credit score however, most lenders have credit score overlays limiting which borrowers can be qualified. Contact us to find out which lender is best suited for your credit terms.

FHA Eligibility and Loan Terms

The home must be purchased as an owner occupied property. You must plan to live in the home being purchased. FHA Loans do not have location restrictions like a USDA loan. There is no household income limit for FHA loans. FHA loans require a down payment of 3.5% however, many homebuyer grants are available to help pay for the down payment.  State and county loan limits can be found on the HUD page here FHA Mortgage Loan Limits.

Individuals or families must be able to afford the housing payment, which includes taxes and homeowners insurance, along with reasonable credit and not own a home by the closing date.

The mortgage will be for a term of 30 years with interest rates that are comparable with any other 30 year government mortgage. Because of the terms of a USDA home loan, payments are lower than most other loans on the market today. There is a yearly fee that is .85% of the loan amount per year broken down into 12 monthly payments. This payment is added to the mortgage payment along with your taxes and insurance.

If your credit score is 580 or higher and you have a source of income, chances are you qualify for an FHA loan

FHA Handbook

https://www.hud.gov/program_offices/housing/sfh/handbook_4000-1

CONVENTIONAL VS FHA LOANS

FHA

FHA Requires a 3.5% Down Payment

FHA homeowners get access to loans of up to 30 years and a minimum down payment requirement of 3.5%. FHA mortgage rates are typically lower than the market average, often by .25% or more. In order to get the FHA’s backing, banks must only verify that loans meet minimum FHA lending standards, a collection of rules which are more commonly known as the “FHA mortgage guidelines”.

You Must Live in The Home Being Purchased

FHA mortgage guidelines state that eligible home buyers must have documented, verifiable income, for example; and require home buyers to live in the home being purchased. The FHA also requires home buyers to pay mortgage insurance premiums (MIP) as part of their monthly payments. FHA MIP varies by loan type and down payment, with the most common scenario being a home buyer using a 30-year fixed-rate FHA loan with the minimum allowable 3.5% downpayment; and paying 0.85 percent against the borrowed amount in mortgage insurance premiums annually, or $71 per month per $100,000 borrowed. The FHA cancels FHA Mortgage insurance after 11 years for loans which started at 90 percent financing or lower. For everyone else, FHA MIP must be paid until the loan is paid in full or refinanced into a non FHA mortgage. FHA is the largest insurer of mortgages in the world. Last year, it insured nearly 1-in-5 loans closed by U.S. lenders.

Conventional

The Conventional 97 Program

The Conventional 97 loan is another low downpayment option available today. Available via Fannie Mae and Freddie Mac, the program was recently released to be cheaper and easier to use. For example, as compared to the original Conventional 97, the newest version is available to first-time buyers and repeat buyers alike, where “first-time buyer” is defined as a person who has not owned a home in the last three years. Furthermore, Conventional 97 allows for cash gifts for down payments. Buyers are not required to make a down payment from their own funds. Money may be 100% gifted from parents and relatives. The only requirement is that the gift is actually a gift and not a loan requiring repayment. For borrowers, the guidelines of the Conventional 97 program are straight-forward.

The Conventional 97 program requires a minimum down payment of 3%, only 30-year fixed rate mortgages are allowed, and the loan must be used for a primary residence. Beyond that, there is very little to distinguish a Conventional 97 loan from any other conventional mortgage type. Borrowers are required to verify income and employment; the program can also be used to refinance a home; and, home buyer counseling is not required. Like other conventional loans, because Conventional 97 loans feature less than twenty percent home equity, they require borrowers to pay private mortgage insurance (PMI). With all Conventional 97 loans, though, PMI cancels when the loan reaches 80% LTV. That is, when the homeowner has 20% equity in its home.

 

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