The FHA Mortgage was created back in 1934 to offer affordable homeownership opportunities for borrowers in the United States. The Federal Housing Administration (or FHA) insures these loans to protect the institution issuing the loan against default. This in turn allows the mortgage lender or bank to offer lower rates and more flexible terms than traditional conventional loans.
An FHA mortgage is an option available to people who are looking for a lower down payment or more flexible qualifying guidelines. In many cases the FHA Mortgage down payment requirement is as low as 3.5%, and the program offers more forgiving debt to income ratio making it easier to qualify for than other mortgage options.
FHA Mortgage Resources:
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FHA Mortgages require a down payment of at least 3.5% of the purchase price of the home. In some instances with lower credit scores, borrowers may be required to put more down in order to qualify.
It can come from existing assets that the customer already has in the bank or it can be a gift from family or employer.
The down payment can also come from community grants or down payment assistance programs which vary from state to state or even city to city. Ask your loan officer about the availability of assistance in your area.
The process for getting an FHA loan is very similar to getting a conventional loan or any other mortgage. For a more in-depth look, review our series on the steps to buying a house and review our complete home-buyers guide.
To obtain an FHA Mortgage, you will go through a few basic steps:
Step 1: Complete an application and then help the loan officer document the information in the application. You can apply for an FHA mortgage online or over the phone. The loan officer will ask for proof of job history, income, assets, and credit history to make sure everything is in line with the guidelines set forth by the Federal Housing Administration.
After the loan officer reviews the application and supporting documentation, they’ll issue a pre-approval. At that point you can begin searching for a home!
Step 2: Once you have an accepted offer to buy a house, the real loan process begins. You’ll provide the loan officer with a copy of your contract, be asked to sign some disclosures and provide any missing documents required for initial underwriter review.
Once complete, the loan officer will order an appraisal, title work and submit all supporting documentation to the underwriter who will review the file compared to the FHA guidelines.
After the initial review, the underwriter will likely ask for additional items and collect any further necessary documentation to make sure that the applicant, contract, home and loan parameters are all in accordance with the FHA guides.
Step 3: Once all conditions have been satisfied, the underwriter will approve the loan. This process takes about 20-25 days from the time you get under contract. Once loan approval has been reached, the lender will work with the title company to finalize a settlement statement and closing documents for the closing.
Once the settlement statement and closing documents are prepared the applicant will sign all the final documentation and the title company will transfer title and record any necessary documents with the county in which the home exists and then you can take possession of your new home!
The FHA Mortgage program is available to US Citizens, Residents and certain Non-Residents.
Applicants can qualify for an FHA loan with a lower credit score and higher debt to income ratios than with traditional conventional loans.
To get an FHA mortgage the home must be your primary residence. FHA allows for family members to co-sign as non-occupying co-borrowers to help people qualify.
FHA is more lenient on credit requirements and at United Fidelity Funding, we can routinely get a loan done for customers with sub 580 credit scores.
Please note: If you have a sub 580 credit score it would require a 10% down payment, and in some instances 20% may be necessary.
FHA loans are beneficial for borrowers with fair to average credit scores. A borrower with a score in the 600s will get a much better rate using FHA for their mortgage than a conventional loan.
For major derogatory credit events such as a bankruptcy or foreclosure, FHA has a shorter seasoning period for those events.
FHA will lend on most types of homes as long as there are comparable properties that have recently sold similar to the home you’re buying.
List of eligible properties would include:
FHA generally wants a property that is in good condition and have some guidelines along those lines. They define this as a property that doesn’t have any obvious safety concerns or would require undue costs associated with repairing the home after purchase. A few common issues often seen on FHA appraisals are:
If the appraiser finds any issues with the home, you will often be able to negotiate with the seller to fix the items. All issues the appraiser notates on their report do have to be fixed before the lender can close on the mortgage.
Summary:
The FHA Mortgage is the 2nd most common home loan in America. It’s one of the top first-time home buyer options, and ideally suited for borrowers with a smaller down payment, fair to good credit and/or somebody with higher debt-to-income ratios.
The rates on an FHA mortgage are often significantly lower than Conventional loans, and can also offer a cheaper mortgage insurance premium, therefore making the FHA Mortgage a cheaper solution for a lot of buyers in the country.