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What exactly is an FHA home loan?

FHA home loans are insured by the Federal Housing Administration (FHA) and can only be obtained from FHA-approved lenders. This sort of mortgage has a fixed term of 15 or 30 years. It’s a popular choice for first-time homebuyers, as well as those with little savings or poor credit. You may be responsible for out-of-pocket expenses such as loan origination fees, appraisal costs, and attorney fees when acquiring a house. One of the benefits of an FHA loan is that the seller, home builder, or lender may pay some of these closing expenses on your behalf. FHA loans have a lower minimum down payment (3.5%) and credit score requirement (at least 580) than many conventional loans. In addition, unlike with conventional mortgages, you can get 100% of your down payment as a gift. This gift could originate from any of the following sources:

  • The borrower's relative.
  • A company or a labor union.
  • A good friend.
  • A non-profit organization.
  • A governmental organization or public institution that offers a home ownership aid program.

If your credit score is between 500 and 579, you can still qualify for this loan. However, you will be required to make a bigger down payment. In general, the lower your credit score and down payment, the higher the interest rate on your mortgage.

Mortgage Insurance Fees

Borrowers who acquire an FHA loan must pay FHA mortgage insurance (this protects the lender from a loss if you default on the loan). You must pay two types of mortgage insurance premiums: an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (AMIP) (charged monthly). This differs from government-insured loans, which require you to pay private mortgage insurance (PMI). The UFMIP is 1.75% of the base loan amount as of 2020. It can be rolled into the loan or paid in full at the time of closing. Your monthly payments for Annual MIP will range from 0.45% to 1.05% of the base loan amount, depending on criteria such as loan length, base amount, and original loan-to-value ratio (LTV). If you make a down payment of less than 10%, you will be required to pay mortgage insurance for the life of the loan. Those who put down 10% will have to pay FHA mortgage insurance for 11 years.

How to Get an FHA Loan ?

Maintain a debt-to-income ratio (DTI) of less than 50%. This means that your total monthly debt payments cannot exceed 50% of your pretax income (including loans that are not actively being paid). Pay the mortgage insurance premium in advance (UFMIP). This is typically 1.75% of the initial loan amount. Have bank statements from the previous 30 days. You must also submit verification for any deposits made during that time period (usually pay stubs). Must have a consistent work history (if self-employed, have two years of successful self-employment history; this should be documented by a current year-to-date balance sheet, tax returns, and a profit and loss statement)..

Unless you can prove that the bankruptcy was caused by circumstances beyond your control, you must be at least two years out of bankruptcy.

  • Any foreclosures must be at least three years old.
  • You must have a current social security number.
  • You must be of legal age and have US citizenship.

For mortgage approval, FHA-approved lenders employ a programme called Desktop Underwriter (DU). To make an automatic credit decision, DU considers the possible borrower’s debt ratio, reserves, and credit score. On top of the basic standards given above,lenders can add their own rules, known as overlays. Because each lender sets their own interest rates and terms, comparison shopping is essential in this industry.

FHA Loan Types

Traditional mortgages are used to finance primary residences.

Home Equity Conversion

It allows homeowners 62 years of age and older to exchange their home equity for cash while still retaining title to the home. Funds can either be withdrawn as a fixed monthly amount or as a line of credit.

FHA 203(k) Program

It includes extra funds to pay for repairs and renovations to the Kansas City house. For this type of loan, the property may undergo two separate appraisals: a “as is” appraisal that evaluates its current state, and a “after improved” appraisal estimating the value after the work/renovations are finished.

Energy Efficient Program

It offers additional funds for energy-efficient house upgrades (could potentially lower the cost of your utility bills).

Section 245(a)

A graded payment mortgage (GPM) with low starting monthly payments that gradually increase, and a growing equity mortgage (GEM) with fixed increases in monthly principal payments that result in shorter loan terms. This programme is for debtors who expect their income to rise.

The Benefits of FHA Loans

The DTI and credit score standards are less stringent than for other loan categories.

  • Reduced down payments.
  • Increased provision for closing-cost financing.
  • Excellent for first-time homebuyers.

FHA Loan FAQ’s

Pre-qualification determines the amount of loan you are likely to receive. Pre-qualification is often obtained through an interview with a qualified loan officer , who calculates the pre-qualification amount. To be pre-approved, on the other hand, you must submit an application and have your credit and financial history verified. After you receive your pre-approval certificate, you will be in a better position to close sooner and at a lower price.
The average FHA loan approval process takes between 30 to 60 days.
Paying your bills on time, reducing your credit balances, and trying to not apply for credit too often are all ways that you can raise your FICO score.
Borrowers are unlikely to be authorized for additional FHA loans while one is active, unless specific extenuating conditions apply. Job relocations, changes in family size, and scenarios in which a co-borrower vacates the property with an existing FHA mortgage loan to purchase their own house are all examples of special circumstances that could justify a borrower having two or more active FHA loans.

A FHA loan may sound appealing, but it is not suitable for everyone. According to the Federal Housing Administration, an FHA loan “would not accommodate or is designed to assist people shopping at the higher end of the price spectrum.”

This type of mortgage was created primarily for purchasers with low-to-moderate incomes; but, if you have a greater budget and are hoping to purchase a more expensive home, a conventional loan may be a better fit for you.

We can help you buy your dream home!

Are you ready to find out what type of FHA loan is best for you ? Dream Home Mortgage can assist you. We can help you find the right FHA Loan option and walk you through the entire process from start to finish.

Dream Home Mortgage,An Equal Housing Lender, a Division of Brazos National Bank, is committed to providing affordable mortgages with superior customer service.

Contact a member of our team immediately at (972) 245-5626 to initiate the first-time homebuyer financing process with our trained staff.Please send your inquiry to Info@dreamhomemortgage.com

Disclaimer

This website’s content is only presented for informational purposes. Programs, rates, and terms are all subject to change without prior notice. Loan approval is based on the borrower’s credit, collateral, financial history, eligibility for the programme, and other variables that are subject to change at any time. Other limitations might be present. This is not a request for a loan.Dream Home Mortgage NMLS#334616 Brazos National Bank NMSL#473879 |www.dreamhomemortgage.com | Equal Housing Opportunity

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