FHA

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An FHA loan can be used to buy a house or refinance an existing mortgage. You can buy a house with a lower down payment than a conventional loan, or use a streamline refinance to refinance your current mortgage in order to lower your current payment, with less documentation than a traditional loan. 

 For 2020, individuals may borrow up to 96.5% of the value of a home with an FHA loan, leaving only 3.5% of the home’s value to put down. 

An FHA home loan is a mortgage insured by the Federal Housing Administration. These mortgages are backed by the federal government, which helps FHA-approved lenders extend home financing to buyers who are unable to qualify for a conventional home loan.

The FHA doesn’t issue mortgages, the agency provides insurance on mortgage payments, so more borrowers are able to attain home financing through an FHA-approved lender such as a bank.  Mortgage insurance premiums are the cost of having the FHA guarantee your loan, which is used to protect the lender from loss if you are unable to pay the loan back.

FHA loans are designed to make home ownership more affordable. Though they were originally intended for borrowers with less than perfect credit, they are now popular with a wider group of borrowers.

Since there are many FHA home loans, and FHA loan requirements vary depending on the loan type, usually the credit stipulations are more lenient while the loan requirements are stricter.

• Less than perfect credit is not disqualifying.
• Maximum financing available with 580 FICO
• Low down payments 
• Gifts or grants allowed toward down payment.
• Sellers, builders, or lenders may pay some of borrower's closing costs.
• Higher home inspection standards

Those with a credit score between 500 and 580 may still qualify for FHA loans but will need a down payment of 10% instead.

Can self-employed individuals qualify for FHA loans?

For those who are self-employed, you will need two years of tax returns and an up-to-date balance sheet and profit and loss statement to qualify for an FHA loan.  If you have been self-employed between one to two years, you may still be eligible for an FHA loan if you have a good work and income history for the two years leading up to becoming self-employed and you are in the same or related occupation.

Even if you have filed for bankruptcy or been foreclosed upon, you can still qualify so long as you’ve rebuilt your credit, usually the waiting period is 3 years after a foreclosure and 2 years after a bankruptcy. Generally speaking, the lower your credit score and down payment, the higher your interest rate will be.

Although most loans will require mortgage insurance payments if the down payment is under 20%, all FHA loans will require borrowers to pay an upfront mortgage insurance premium of 1.75%, as well as monthly mortgage insurance.

FHA loans enable more people to achieve home ownership by allowing borrowers who have less than perfect credit, no credit history, or who may have experienced some financial missteps, like a foreclosure or bankruptcy, to qualify. 

The program has become popular with first time home buyers and move up buyers because you can buy a house with a lower down payment and has more flexible underwriting standards.

With lower down payment options, and flexible lending guidelines this loan type is a top choice for today's buyers.

FHA MIP is what makes FHA loans possible. 

• Wide Variety of FHA Loan Options: Whether it is a 30 year fixed, 15 year fixed or a 203k loan, FHA has you covered.
• FHA Allows Low Down Payments: With a low-down payment option, more people can buy a new house. This is great for first time home buyers, and those who have little money to put down.
• FHA Allows 100% Gift Funds: In addition to a low-down payment, those funds can come from a gift.
• FHA Insures Various Types of Properties: They are available for single-family detached homes, 2–4-unit homes, condos, and manufactured homes.
• FHA Streamline Refinance: One of the unique features of an FHA loan is the ability to Streamline Refinance. This is the easiest way to refinance as there is no credit qualifying, no income verification, and no appraisals required if you refinance your FHA loan.

One big advantage of FHA loans is that FHA permits the seller of the property to pay some of the closing costs (origination fees, attorney fees, appraisal costs, etc.) on your behalf.  Sellers can choose to further incentivize the purchase of their home if they’re having trouble finding a buyer.

FHA 15 Year Fixed Rate Loan:

• All the benefits of a 30 Year Fixed Rate Loan
• Save thousands in interest over the life of the loan
• Build equity faster
• Pay your house off sooner

FHA 30 Year Fixed Rate Loan:

• No prepayment penalties
• Low down payment options
• Gift funds allowed
• Ability to Streamline Refinance

FHA 203k 30 Year Fixed Rate Loan:

• 203k is a renovation loan program that helps borrowers buy a fixer-upper or make improvements to their existing home. The loan allows borrowers to obtain funding for both the purchase and improvement of the home.

FHA 5/1 Adjustable-Rate Mortgage:

• Keeps interest rates low for 5 years
• Introductory interest rates are typically lower than fixed rates
• Good for buyers who plan to own the home for a short time or refinance in a few years.

FHA Streamline 30 Year Fixed Rate Refinance Loan:

• Lower your payment by lowering your current interest rate
• Convert an FHA Adjustable-Rate Mortgage into a fixed rate mortgage
• FHA Streamline refinance loans require less documentation than a traditional loan
• No appraisal required
• No income documentation
• Easier to qualify
• No appraisal required

FHA 203k Streamline 30 Year Fixed Rate Refinance Loan:

• FHA 203k allows borrowers up to $35,000 to pay for home improvements or renovations.

FHA Streamline 5/1 Adjustable-Rate Refinance Mortgage:

• FHA 5/1 ARM establishes a lower initial interest rate for the first five years, then the market determines your rate
• Adjustable-Rate Mortgages typically have lower interest rates than fixed rate loans
• Useful if you plan on selling your home in the near future.

Other FHA Loan Considerations

For FHA loans, typically the property being financed is to be your primary residence and the loans can’t be used for investment or rental properties.  However, eligible residences include semi-detached homes. townhouses, row houses, and certain condominiums.

For approval, you will need to show that your mortgage payments, HOA fees, property taxes, mortgage and homeowner’s insurance are under 31% of your gross income.  You will also be required to have the property appraised by an FHA-approved appraiser.  You will be forced to pay for repairs at closing if the home does not meet certain FHA standards and the seller refuses to make repairs.

Lastly, it will need to have been at least two years since any Chapter 7 bankruptcy filing, and you will need to have re-established good credit or chosen not to incur new credit obligations.  If you have been foreclosed upon, it must have been no more recent than three years ago.