The Federal Housing Administration, commonly referred to with the acronym of “FHA”, was established 82 years ago. It was originally launched in the aftermath of the economic challenges posed by the Great Depression. This government organization serves to assist Americans in their quest for home ownership.
The FHA provides highly competitive home mortgage interest loan rates along with top-notch refinance options. These offerings are available to those who are on the prowl for a mortgage insured by the FHA as well as those who do not desire such insurance. As of 2016, the FHA is the world’s largest mortgage insurer.
The Basics of the FHA’s Fixed Rate Mortgages
A fixed rate mortgage is often available to those who have less than stellar credit. Certain individuals simply lack a credit history yet are capable of proving to the lender that they have an excellent history of bill payments made on-time and in-full. The FHA employs what is referred to as “common sense underwriting”. In layman’s terms, common sense underwriting means the FHA does not simply examine a potential borrower’s credit score. Rather, the FHA examines an array of other factors such as the candidate’s time on the job, whether his salary has been consistent over the past years and whether he has paid his rent in a timely manner. Those who have a credit score of 580 or higher are eligible for the FHA’s fixed rate mortgage. This style of mortgage is also available to those who can only afford to pay 3.5 percent (or more) of the home’s total cost in the form of a down payment. There are no pre-payment penalties. The fixed rate home mortgage is available with a 15, 20, 25 or 30-year term.
Get the Ball Rolling on Your FHA Home Loan by Applying Today
The FHA home loan application is available on our website. You can even submit supporting documents and check your application’s status on our website. If you have any questions or concerns, do not hesitate to reach out to one of our mortgage specialists for assistance.
FHA Home Loan Requirements
If you do not have an excellent credit rating, years of stable income or other typical qualifications for a home loan, you still might qualify for a FHA loan. Though FHA loan amounts differ by region and property type, they are still one of the easiest home loans to obtain. Here is exactly what you will need to qualify for a FHA Home Loan:
- A FHA home loan applicant’s down payment amount dictates the level of credit score deemed acceptable. As an example, a home loan candidate with a credit score in the range of 500 and 579 will be required to plunk down an initial down payment that equates to at least 10 percent of the home’s value. A home loan candidate who would prefer to make a down payment in the general range of 3.5 percent to 9 percent will be required to have a minimum credit score of 580 or higher.
- FHA home loan candidates must prove they have an uninterrupted history of employment. It is also possible to qualify for this variety of home loan if one has worked for a single employer in the two consecutive years preceding the FHA home loan application submission.
- The candidate must prove that his social security number is legitimate, that he is of his state’s legal age to obtain a home mortgage and that he lawfully resides in the United States.
- The borrower’s down payment must be at least 3.5 percent of the home’s sale price. If the prospective buyer cannot afford such a down payment, he can still be approved for a FHA home loan if the money is gifted to him by a family member.
- A FHA home loan applicant will also be required to pay two distinct types of mortgage insurance payments. The first is paid all at once at the outset of the home’s acquisition. Alternatively, it is possible to finance this mortgage insurance premium directly into the mortgage. The second mortgage insurance premium is paid each month.
- Only primary residence occupancy homes are eligible for purchase with the use of a FHA loan.
- The borrower must have a front-end ratio of 31 percent or less of his gross income. The front-end ratio is calculated by adding the mortgage payment to the cost of homeowners’ insurance, the cost of mortgage insurance and HOA fees. Though it is possible to obtain approval with a front-end ratio upwards of 40 percent, approval will hinge on the lender’s ability to prove that extending the mortgage offer is a risk worth taking.
- The borrower’s back-end ratio must be 43 percent of his gross income or less. The back-end ratio is calculated by adding the borrower’s mortgage to his monthly debts such as his car note, the cost of his student loans, credit card payments and beyond.
- If the borrower has declared bankruptcy, he must be two years removed from this declaration. Such an individual must also have re-built his credit. Exceptions to this standard are possible if the candidate has been removed from bankruptcy for longer than a year. For the most part, such an exception is granted if the bankruptcy was caused by extenuating circumstances beyond the loan applicant’s control.
- In most instances, the borrower must be three years removed from a home foreclosure. Such a candidate is also required to have re-established his credit in the meantime. If the candidate has improved his credit but hasn’t reached the three-year mark following his home foreclosure, it still might be possible to obtain approval for a FHA loan. Yet one’s inability to sell his home because he needed to move to a new locale does not qualify as an acceptable exception.
- The borrower is required to have a FHA-approved appraiser conduct a property appraisal.
- The coveted property must meet specific standards at the time of appraisal. If the targeted property does not meet these requirements and the seller refuses to perform the appropriate repairs, the buyer must pay for those repairs at the time of the closing. The funds used to cover the cost of these repairs will be held in an escrow account until performed.