Monthly Archives: January 2012

The Ins and Outs of the FHA Loan Process

You’ve probably heard people talk about, but what on earth is an FHA loan? And, is it the right choice for you?

Let’s start with the basics…

An FHA loan is a government-insured mortgage. The money comes from a private lender, but if you default, the federal government picks up the tab. That way, private lenders don’t have to be on the hook — meaning they’re much more likely to approve loan applications, because the risk has been eliminated.

76754633However, that means you’ll have to deal with two separate entities to get your mortgage — meaning that you could end up going through double the red tape.

So, if that’s the case, why are FHA loans so popular?

Because you can have a much lower credit score and still qualify!

Remember, the federal government is removing the risk for lenders by insuring these loans. If you went out and tried to get a traditional mortgage, you’d need a credit score of at least 680. But if you apply for an FHA loan, you only need to have a credit score over 500. (That may be the official minimum, but in reality, lenders are looking for better scores than that.)

There are other perks, too.

If you have a credit score over 580 and can meet a variety of other FHA guidelines, you’ll only have to make a 3.5% down payment on your new home. If your credit score is under 580, you’ll have to put 10% down. That’s a big contrast from traditional loans, some of which require a 20% down payment!

And, just like traditional mortgages, you can pre-qualify for an FHA loan. That way, you can go out house-hunting with a loan approval in hand. Plus, you’ll know exactly how much you can spend.

But with those perks come some restrictions.

First, if you want to get pre-qualified, you’ll need to be at least three years removed from any foreclosures and bankruptcy filing.

Second, if you have a bunch of unpaid debts, forget about qualifying for an FHA loan in any shape or form. As of July 1st, the rules changed. Now, if you have a combined outstanding debt balance of $1,000 or more, you can’t get approved. The only way around this rule is to show that your debts are the result of something beyond your control — like a death in the family, a job loss, or a divorce.

Third, if you qualify for an FHA loan, your housing expenses (like your mortgage payment, your property taxes, your homeowners’ association fees, and your homeowners’ insurance premiums) cannot take up more than 31% of your gross monthly income (or, the money you make before taxes).

There are ways to get around this rule — if you have what are called “compensating factors”. Your lender can look at your specific situation and tell you if you qualify for an exemption to the 31% rule.

Those aren’t the only rules, though.

People who get FHA loans also have to pay private mortgage insurance. With traditional mortgages, you can get around this monthly fee by making a bigger down payment. However, all FHA borrowers have to pay it.

Luckily, private mortgage insurance rates went down in June. Now, they’re only 0.046% of your home loan’s value (instead of 0.096%). It may not seem like a big difference, but it can save you quite a bit of money in a year’s time.

Bottom line — if you’ve had some trouble qualifying for a traditional mortgage, an FHA loan may be your ticket to homeownership. Just be sure to weigh all of the pros and cons before you sign on the dotted line.

Home Condition Requirements for an FHA Loan

FHA loans are a popular type of mortgage that is often used by first time home buyers. The low down payment requirement and easier credit guidelines are both issues that attract borrowers to choose FHA. While it is FHA’s mission to make homeownership affordable for consumers, it is also their concern that a home be a safe and secure place to live. For this reason, there are specific home condition requirements for FHA loans.

76662958FHA has minimum property standards that are in place to include the safety, security and soundness of the home. The home that a borrower is interested in purchasing must not have any deficiencies or conditions that will affect the sturdiness of the building. The home must be able to protect the safety and health of any and all occupants.

When a borrower applies for an FHA mortgage, the process will include that an appraisal be performed. The lender must use an FHA approved appraiser for this purpose. It is the duty of the FHA appraiser to examine the property and report what he finds on the FHA appraisal. This includes any necessary repairs, renovations or deterioration. There are some deficiencies that FHA does not require to be repaired before closing. These include cracked glass, defective paint, worn flooring, doors that are damaged, worn out counters, minor plumbing issues, walls or ceilings with damaged plaster.

On the other hand, FHA does require that certain items be remedied to meet FHA approval in order to close. These issues include replacing any electrical boxes that have exposed or frayed wires, a heat source in every room, the water heater must meet local building codes, there must be safe and adequate access to the property including from the road, a toilet, sink and shower must be present, and a professional must inspect any hazardous materials that are found.

The appraiser is also required to look in the attic in order to determine any roofing issues that may be present. For an FHA loan, the roof must be expected to last at least 2 years and must be able to keep moisture out during that time frame. The roof is limited to no more than three layers of roofing. The property conditions and location are also considered for potential hazards such as soil that has been contaminated by oil and gas wells, the distance to hazardous waste sites, airports or other areas of noise, the distance to high voltage power lines, radio and TV transmission towers. Structural deficiencies or conditions that can lead to future damage must be also be repaired before closing. These include leakage, decay, termites and dampness.

While the FHA appraisal may appear to be strict, the property condition stipulations are there to protect the borrower who is looking for a pleasant and healthy place to live. FHA does not want the home buyer to purchase a home that reveals costly problems after the closing has taken place. For most home buyers, it is easier to find a different, more suitable home before closing that to have the funds available for repairs after closing.

Important Considerations When Applying For A FHA Loan

With interest rates the lowest they have been in generations and property prices stable there are some people who believe now is the best time to buy a home.

If you are buying your home with all cash from your personal savings then congratulations you have achieved quite a milestone. The majority of Americans do not have enough cash to buy the home outright or even to pay the standard twenty (20) percent down payment to secure a conventional loan.

76131969What the majority of prospective home buyers do is apply for a FHA insured mortgage. The FHA is a government entity which insures mortgages from default provided the buyer has met a series of conditions that have been set by the FHA. Banks are willing to provide loans since they have a promise from the government to make them whole should the mortgage default.

Right now the FHA requires that prospective homeowners have a minimum credit score of 580. If you do not know what your credit score is that information can be procured online. Something you should do is request a free copy of your credit report. Inside this report it will detail all credit accounts you have that are not secured. Once you receive a copy of this report you need to look the report over closely for mistakes that could have a negative effect on your credit score.

The law is very clear, if there are mistakes inside your credit report they must be corrected by the credit reporting agency. You must notify the agency in writing about the mistake before they are forced to take action.

After you have cleared up your credit score and it meets the requirements set out by the FHA you need to find a lender who will offer the loan to you. While the FHA insurers the mortgage they do not lend money out to purchase the home. You have the option of either applying through a mortgage bank or reaching out to a licensed mortgage broker who can shop around for you.

By using the services of a mortgage broker you can save time and find out within a matter of hours whether you qualify for a mortgage. What most lenders and the FHA look at is the stability of your income, if you have been employed consistently for at least two years you stand a much better chance of locking down a mortgage than a person who has just started their job.

It is possible to own the home of your dreams sooner than expected thanks to programs like the FHA which help make homeownership possible.

FHA Loan Modification Program

Even though the Department of Housing and Urban Development (HUD) is rendering extensive attempts to encourage the Federal Housing Authority (FHA) home loan modification plan sponsored by the government, many borrowers are still not knowledgeable about the plan. They do not understand how useful it would be in adjusting their existing mortgage. The FHA program features can help you customize your existing house loan, and make it less expensive to buy back.

56903057The primary target of the FHA loan modification program, also called the “Hope for Homeowners Program” is to aid the homeowners who have financial difficulties in paying their mortgages. The FHA modification aids troubled homeowners on the brink of losing their residences to prevent property foreclosures and keep their property.

Prior to obtaining the FHA loan modification plan, it’s necessary for the borrower to completely comprehend the terms and conditions involving the policies of the program. The federal government has issued FHA loan modification eligibility qualification, and it’s a need that the applicant be eligible as per their guidelines. As per the FHA modification specifications instruction laid down by the federal government, the client has to fulfil the terms and conditions as stated by the FHA, as well as submit certain documents to become eligible for amendment.

The following documents are: Adversity correspondence. The hardship letter must effectively express your existing financial issues that describe you are extremely experiencing difficulties and it is difficult to settle your current mortgage. The notice should be straightforward, properly written, honest, and self explanatory because this will stand for your case; the individual is the property owner and a tenant of the home; the candidate should be able to pay for a down payment of approximately 3.5 percent of the offered loan amount; bank account transactions; confirmation of monthly salary (pay stubs and pay slips); and credit history.

FHA loan modifications are not that simple to acquire as the qualifying criterion is challenging. Furthermore, the state of your credit scores if it is poor or bad will have a great influence which makes it even more hard to acquire the FHA loan modifications. Typically, especially if the borrower has overlooked the mortgage payment, this can be revealed in the credit history. There are on the other hand, modification professionals that could assist you on your credit scoring, and will determine a feasible regular repayment timetable.

The FHA loan modification specialists will analyze your existing mortgage status. They will determine your total mortgage debt status i.e. the sum you must pay to clear off your mortgage loan. Missed and late obligations will lead to late fees and penalties that will add on to your existing mortgage burden. The loan modification experts will negotiate with your loan provider and encourage them to waive or reduce the late fees to ensure that your net payable burden will lessen. They will discuss on your FHA loan modification proposal and compose an effective difficulty correspondence. The letter should really sound genuine that you happen to be presently not in a sound financial condition to help save your current home loan. That it is totally tough for you to redeem your mortgage. They will support you with appropriate guidance so your request has a good stand of becoming authorized.

FHA Loan Basics

FHA loans are offered through the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development. Although the word loan is in the title, it is actually insurance for lenders that promises them that their loan will be paid back. Favorable lending terms like receiving a lower interest rate and paying a smaller down payment are available for families who have an FHA loan. If you are interested in applying for an FHA loan, here is what you need to know.

Qualifying

56529152Lending companies, banks, and credit unions all offer FHA loans, and consumers will be able to find one from any institution that lend money for mortgages. A person must have excellent credit and have a low debt-to-income ratio in order to qualify. This means that you must take in a lot more money each month than you have to pay out. If your lender does not ask you if you are interested in applying for an FHA loan, ask about it yourself during application time. Keep in mind that, unlike some other state and federal mortgage programs, there are no income requirements for qualifying for an FHA loan.

The Basics

Borrowers are only required to put down 3.5 percent when purchasing a home with an FHA loan. However, closing costs do tend to run a little more than average as compared with standard mortgages. Home buyers are required by the government to set up an escrow account for FHA insurance. The money in the account is the amount owed to the FHA for costs associated with the loan. Keep in mind that while the 3.5 percent down and the amount of money in the escrow account is not negligible, it is still usually less than the standard 20 percent down that lenders receive for stand ard mortgages.

Picking the Home

It can be a slightly different experience choosing a home that will be bought with the Federal Housing Administration. Home inspections must be made according to standards that have been set by the FHA. If the home does not pass the inspection, a buyer will not be able to get qualify for the loan. There are, however, special programs to assist buyers who wish to purchase a home that does not qualify through the inspection. The borrower can add in the amount that the repairs will run into the entire loan amount. This program makes it possible for buyers to purchase homes that are considered good investments as fixer uppers. There are also individually run programs for the purchase of a trailer or a multi-family home.