Understanding FHA Loans – Some Questions

FHA loans are popular, especially among first-time home buyers, for low down payment and less stringent credit requirements. Here are some of the features that have made FHA loans popular among home buyers.

  • The down payment requirement can go as low as 3.5% of the loan amount.
  • You do not need a very good credit score to qualify an FHA-insured home loan.
  • You may even have some or all of closing costs covered.
  • If you want to buy a home that is in need of repair, such as a HUD home, you may a home financing solution at FHA that can cover the cost of the property you are buying as well as the cost of repair work needed for safe rehabilitation.
  • When facing financial hardship, borrowers can consider taking streamline refinance, which is being offered by all leading lenders, including Bank of America and Wells Fargo.

What is an FHA Loan?

FHA stands for Federal Housing Administration, which insures loans originated by a private lender. FHA doesn’t make loans, but guarantees the repayment of the loan if the borrower defaults. In such a situation, the lender gets the money from HUD, the parent institution of FHA, in exchange of the property deed. The property is foreclosed and made available for sale under HUD Homes.

What are some of the popular FHA loan programs?

The most popular loan program is referred to as FHA 203b loan, which is a result of the Section 203 of National Housing Act (12 U.S.C. 1709 (b), (i)), popularly known as Section 203(b). The other commonly known borrowing option is 203(k), which allows a borrower to fund not only the buying price of a home, but also the cost of repair work needed before they can move in. FHA Title II is yet another common loan program.

What are the requirements to qualify for FHA 203b Loan?

Besides the general eligibility standards, borrowers must fulfill the following conditions.

  • They must have at least 3.5% to put down at closing and a minimum credit score of 580.
  • Borrowers with a low credit, usually between 500 and 579, must have a minimum of 10% to put down.
  • Their loan amount must not exceed $625,000 ($729,750 in some counties).
  • The maximum front-end ratio is 31% and the maximum back-end ratio is 43%.
  • They must have enough to pay for closing costs and the upfront mortgage insurance premium (UFMIP).
  • They must also have enough income to pay for an annual mortgage insurance premium (MIP).

What are the general guidelines for the borrowers of FHA loans?

The following are some of the general guidelines for FHA loan applications.

  • The borrowers must be U.S. citizens and have attained the legal age to sign mortgage documents.
  • They must possess a valid Social Security Number.
  • They have not changed their jobs in the past two years.
  • They need money to buy a house that they intend to use a primary residence.
  • They must approach an FHA-approved lender and use the services of an FHA-approved appraiser.
  • The property they are going to buy must be one-to-four unit structures.
  • A borrower can typically apply two years after bankruptcy or three years after foreclosure.
  • If the house is in need of repair, your seller must repair it before closing. If it doesn’t happen, you may have to pay for the required repairs at closing. The money will be kept in escrow until the repair work is completed.

What are the FHA loan limits?

The present loan limits for conventional financing are $625,000. In some areas, the loan limit can go up to $729,750. Visit https://entp.hud.gov/idapp/html/hicostlook.cfm for FHA Connection login to check the current FHA loan limits 2015 in your area as well as use a loan limit calculator.

Where to find more information on FHA loans, limits and rates?

You can visit hud.gov and portal.hud.gov to know more about loan application, processing time, funding fee and FHA outreach. Besides, you will find a huge collection of various HUD forms, including form 92544 used as Warranty of Completion of Construction.

To check the current interest rates on FHA-insured loans, you must see the online resources of your lender or meet the loan officer or broker personally. The rates, closing costs, services and underwriting standards will vary among lenders or mortgage brokers. You can also use the payment calculator of your lender to know if you can afford the monthly payment.

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