Thе FHA, оr Fеdеrаl Housing Admіnіѕtrаtіоn, provides mortgage insurance on loans made by FHA approved lenders.
FHA insures these loans on single family and multi-family homes and has insured tens of millions of properties since it was created in 1934.
It’s important to note that the Federal Housing Administration does not issue the home loan. This is done by your mortgage lender.
However, if you default or stop making your mortgage payments, your home loan lender receives financial recourse from the FHA, therefore reducing the lenders’ risk and making them more willing to loan money, while also keeping borrowers’ costs down.
The combination of low rates, low down payment, and flexible lending guidelines have made it one of the most attractive loans for home buyers today.
It may help you save money and possibly qualify for a larger mortgage. FHA is more lenient and understanding about credit issues and personal problems.
If you had a previous bankruptcy, you could usually get an FHA loan only two years after the discharge date.
If you had a foreclosure, you’ll have to wait 3 years to apply. If you had late payments within a distinct time frame and had a good payment history the rest of the time, they may overlook that.
However, you will not be eligible for the FHA loan if you have had federal liens such as tax liens or defaults on student loans. Having a lower interest rate means you will pay less over the life of the loan.
Having a car payment and student loans will still allow you to qualify. Still feel that you can’t afford the payment.
The FHA will allow a maximum of 43 percent debt to income ration, whereas conventional mortgages allow a maximum of 36 percent debt to income ratio.
We are going to take a look at the FHA loan and give you a better understanding of why it’s a great program to buy your next home.
Also there is an FHA loan known as the FHA 203k Loan that can be used to fix up a home that needs work.
This is different from the 203B loan which is use to buy homes that don’t need work. You can also use energy upgrades to help with keeping the energy bill down.
Now let take a look at the process.
FHA Mortgage process
So, you want to know how the process works? Then let’s start on what you need to do. Also, check out the ABC mortgage article on this blog site.
What you want to do before you ever purchase a home, make sure you get an approval from the lender.
If for some reason you don’t know of a lender or don’t know one off the top of your head feel free to contact me.
Typically, the first thing the lender is going to do is ask you for a loan application. You can fill out the loan application first.
Once your loan application is done the lender is going to tell you what you can qualify for.
The main thing to know you don’t have to buy the house at your top approval amount.
For example, if you were looking for a house in Frisco Texas and you found a house for around 350,000.
You don’t have to go to the full approved FHA loaning limit.
You can make your offer at 340,000. Which is 10,000 below what your full approval letter states you qualify for.
You just have to make sure you let your Realtor know that you don’t want to max out the approval letter.
The most important part of this is you have to make sure you have all the necessary documents into the lender for the transaction process to be smoother.
We cannot stress that enough.
If your closing is delayed. It is sometimes because the lender asked you for documents in the process and for some reason the buyer was slow to get the documents turned in.
If all documents are not in you do not have full approval you have a pre-approval.
There are times where the closing is delayed due to seller issues. But to make sure there are no issues on your end turn in all necessary documents ahead of time.
FHA home lending options are quite well known since they will permit someone to finance your home purchase with having substantially less compared to twenty percent down.
You are able to have as minimal as 3.5 percent. This truly makes it possible for many men and women to become homeowners.
FHA household loans have been initially designed for 1st time residence purchasers. On the other hand, consumers who are not 1st time buyers may possibly qualify for an FHA house mortgage; however FHA won’t enable anyone to possess more than one FHA insured loan simultaneously.
Conceivably among the biggest primary advantages of FHA financial loans is the fact that little to no cash down is required regarding mortgage acceptance.
FHA financial loans are also generally extended to men and women with much less than regular or even bad credit rating histories; making Federal Housing Administration dwelling loans much more obtainable compared to several other kinds of mortgage financial products.
What credit score do they use to buy a house going FHA?
Nowadays there a lot of people сrеdіt scores are nоt аѕ gооd аѕ they оnсе wеrе. But, if you have been maintaining your bills.
Keeping a low debt to income ratio then you should make that next step and get qualified.
Every lender is different. Hоwеvеr, mоѕt conventional lenders wіll nоt lеnd tо ѕоmеоnе whо hаѕ a rating lоwеr thаn аrоund 610 оr 620.
Having a 620 is the goal you should aim for. With a 620 score, you should see a decent rate.
Remember, if you are using a down payment assistant program like TSAHC the loan rate is going to be a little bit high then if you were paying your down payment.
A score at this level will not get you top rates and terms. To do that you would have to have excellent.
An аррlісаnt with a credit ѕсоrе of 500-580 іѕ rеԛuіrеd tо make a down рауmеnt of аt lеаѕt 10% аnd thоѕе with scores hіghеr thаn 580 wіll оnlу be rеԛuіrеd tо mаkе a dоwn payment оf 3.5%.
Bаѕеd оn the information we’ve соvеrеd ѕо fаr іt mаkеѕ a lоt of ѕеnѕе tо сlеаn uр уоur credit hіѕtоrу bеfоrе уоu аррlу fоr a hоmе lоаn.
Thе fоllоwіng steps should help уоu dо just thаt.
- Chесk аll thе information tо mаkе sure thаt everything on the credit report іѕ accurate.
- Elіmіnаtе any discrepancies уоu find аѕ thеу could hurt уоur сhаnсеѕ of hаvіng a fаvоrаblе credit score.
- Pау оff аll thе еxіѕtіng balances оn any loans уоu mау сurrеntlу have.
Thеѕе оnе-оff рауmеntѕ саn be vеrу еffесtіvе іn rаіѕіng уоur credit ѕсоrе.
- Try tо kеер уоur dеbt below 30% оf your credit lіmіt.
Thіѕ іѕ a good way to kеер уоur сrеdіt ѕсоrе uр. Dереndіng оn whо уоu tаlk tо оr the mоrtgаgе рrоduсt you’re rеfеrrіng to, сrеdіt scores for hоmе loans саn vаrу.
A lоt оf lеndеrѕ look tо thе FHA аѕ a guide post аnd uѕе thе same mіnіmum аѕ thе FHA dоеѕ. If you need to know to know what your credit looks like you can visit Annual Credit Report website.
They will give you a free website or you can go to credit karma and you can view your report. Note: that Credit Karma reports show a possible 30 or 40 point difference from your actual credit score so keep this in mind.
FHA bank statement requirements
FHA bank statement requirements
What are the Income Requirements and Guidelines for a Mortgage? Proving your ability to repay the loan is one of the most important requirements in the qualifying process.
That is why showing sufficient and consistent income documentation is crucial when going through the per-approval or qualification process.
If you are a W-2 employee and paid a salary, then the verification process is fairly simple.
However, it can be more difficult for people that receive and or rely on commissions, bonuses, overtime, etc.
For borrowers that are self-employed and or receiving a 1099 it can be even more difficult and complex especially since you can have a lot more write offs and deductions.
First and foremost, you need a 2-year work history to even qualify using any income source.
However, for full-time hourly or salaried employees that doesn’t mean you have to be at the same company or industry for 2 years.
If you are a full time hоurlу or ѕаlаrіеd employed that doesn’t mean you have to be at the same company or industry for 2 years.
You will have to check with your lender to make sure.
That use to be a requirement but not anymore unless the lender or bank you going thru guidelines requires it.
If you receive and want to use commission, bonus, overtime or other types of income then you have to show a minimum of a 2 year history and the bank or lender will use a 24 month average for qualifying purposes.
Self Employed borrowers are now able to qualify with 12 to 24 months banks statements for certain nontraditional non qualifying loan programs.
In order to use income from a part time job you must be on that job for a minimum of 1 to 2 years in some cases.
Same thing goes for Income from a second full or part time job.
Overtime, Commissions, Bonuses in order to use it you must have a average over 24 months.
There are specific required documents needed that your loan consultant will request in order to process your loan approval.
You should at least have the below list of documentation readily available and ready to provide to provide to them.
Complete Federal Personal and or Corporate Tax Returns for the past 2 years with all schedules.
FHA loan documents at closing
So what happens at closing? When you are closing on your FHA loan there will be normally two sets of documents to sign.
These documents consist of the Deed of Trust, Warranty Deed, Survey, Lender documents that talks about your interest rate and terms and condition of the loan.
You will also sign a document that you give the lender permission to transfer the mortgage note. There are also times when the lender will put a clause in the mortgage note that allows them to sell the mortgage.
This happens a lot. You will typically get a letter in the mail from the lender saying they are your new mortgage company.
The other documents that you will see at closing are your HOA declaration and the Rules and Regulations of your HOA.
You will also get a copy of the Real Estate Contract that you signed with the seller. The other document that you will see at closing is your Closing Statement.
The statement will show you all of the closing costs you paid.
Conclusion:
FHA loan is a great way to buy a home. It offers great opportunities for first time home buyers who are looking for ways to buy a home with little money out of pocket.
The FHA loan can be combined with a First Time Buyers Program and with a down payment assistant program.
When this is done the homeowner will typically have less than 3.5% down, along with appraisal fee and inspection fee.
Remember, Home Ownership will always be apart of the American Dream!