>What Are FHA Home Loans?
FHA Financing: A Loan for borrowers With low credit scores and low down payment
FHA Loans are known to be among the most lenient home loan options that a buyer has to use.
They are regarded as such because they are backed by Federal Housing Administration, which means these loans are insured by the government itself. The amount insured depends on the county which the property is located in. Fortunately, Orange, Los Angeles, and San Diego counties have higher loan limits than FHA's base limits.
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Who Should Apply for an FHA Loan?
How Does an FHA Loan Benefit Me?
There are many benefits of applying for an FHA loan. Here are some of the most significant benefits one will notice when during the application process.
- 1. Easier Qualification
Because of the backing from the government the lender is more susceptible to make the loan work. - 2. Lower Rates
FHA loan rates are generally much lower than conventional loans because of the insurance granted by the government. - 3. Lower Credit Scores
Poor credit is generally why most of the people fail to qualify for conventional loans, but this isn't a problem as far as FHA loan requirements are concerned. Some programs go as low as 580 - 4. Stability
FHA loans have been here since 1934, so they are very dependable. - 5. Protection
If times get tough in the future economically for you, FHA loans are one of the best loan products to help you keep the house.
Keeping the above-mentioned benefits in mind when applying for an FHA home loan as it can be a real lifesaver for people.
What Are the requirements to get an FHA loan?
There are certain requirements that a borrower has to fulfill in order to apply for an FHA loan.
- You shouldn't have had a bankruptcy in the past two years and should have a good credit for at least two years after filing for bankruptcy.
- No foreclosure in the last three years and good credit following those tough years
- At least three years of stable income
- A proof of payment of all bills
- Should be able to put down 3.5 % of the property's purchase price
- Should be willing to cover 2.25 % in closing costs
- Monthly payment should be around 30% of your income.
If you are able to meet the above-mentioned requirements, you can apply for an FHA loan.
Which Type of FHA Loans Are Available?
With minimal regional differences based on the county, FHA offers the following financing on their loans:
- Fixed Rate Loans
This type of loan offers home buyers a fixed monthly installment throughout the life of the mortgage, 15-year fixed or 30-year fixed. Therefore, you know the installment in advance and can arrange a budget for it. - Adjustable Rate Loans
The ARM or Adjustable Rate Mortgage provides the flexibility to go for lower interest rates for the low initial period of time and then switch to higher market rate or the reverse process. - Purchase-Rehab Property Loans (203K)
Sometimes it such happens that your dream house requires a lot of reworking and in such cases, fixer-upper loans come to the rescue. This specialized loan includes both the mortgage as well as repair costs.
You can pick any of the above-mentioned types of loan options for your FHA loan. That being said, if you need to find a loan program to get into a home, then starting with an FHA loan is one of the best possible options to do.
| County | 1 Unit | 2 Units | 3 Units | 4 Units |
|---|---|---|---|---|
| Orange | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| San Diego | $977,500 | $1,251,400 | $1,512,650 | $1,879,850 |
| Riverside - San Bernardino | $644,000 | $824,450 | $996,500 | $1,238,500 |
| Los Angeles | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
FHA Common Questions & Answers
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What would disqualify you from getting approved for an FHA loan?
The three primary factors that can disqualify you from getting an FHA loan are a high debt-to-income ratio, poor credit, or lack of funds to cover the required down payment, monthly mortgage payments or closing costs.
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Are FHA Loans Strict?
FHA loan requirements are often easier to meet because they don't require a high credit score and have a lower down payment limit compared to conventional mortgages. Unfortunately, an FHA loan also has stricter appraisal requirements that buyers have to meet. If the property fails, your FHA loan will be denied. If an appraisal inspection uncovers a major issue, like a bad foundation, the loan may be denied as the home would be seen as a bad investment.
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How do FHA underwriters look at declining income?
If your self-employed income shows a decline of over 20% over the “analysis period” (however long a timeline the lender looks at, typically two years) you may not qualify for the loan. The lender wants to see that your income is stable or increasing, not dwindling.
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What is the minimum credit score for a FHA manual underwrite?
The minimum credit score for all FHA anually underwritten loans is 620? A few lenders will allow 580 or more with a 10-percent down payment and compensating factors.
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Do FHA loans require medical collections to be paid off?
FHA guidelines do not require borrowers to pay unpaid collection accounts, regardless of the type of collection account, medical or consumer.
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How much can you have in collections for FHA loan?
FHA guidelines state that you do not have to pay any non-medical collections with a total value under $2,000 on your credit report. However, these collections mwill be calculated into your debt-to-income ratio which may then require them to be paid in full or partially.
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Why are FHA closing costs so high?
Because FHA closing costs include the upfront MIP, an FHA loan can have average closing costs on the higher end of the typical 3% – 6% range.
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Can PMI be removed from FHA loan without refinancing?
Some FHA loans are eligible to get rid of their mortgage insurance premiums without refinancing. If you: Put 10 percent or more down: Your annual MIP will go away on its own after you've made payments for 11 years. However, If you got your loan prior to 2000, your FHA mortgage insurance premium will remain for the life of the loan.
