There’s no place like home, and for millions of Americans, owning their personal piece of real estate heaven would not be feasible without mortgage loans. While shopping for a home is an excitement-laden experience, the thought of financing the most important investment of their life haunts the average consumer. With the advent of FHA mortgages, home ownership became a reality for individuals who would otherwise have been disqualified under conventional loan guidelines.
FHA home loans are guaranteed by a branch of the Department of Housing and Urban Development (HUD) known as the Federal Housing Administration (FHA). While FHA does not furnish the loan, it insures payment of the mortgage in the event of the purchaser’s default, thus reducing the risk to the lender. This provides an incentive for lenders to issue loans they otherwise might deem excessively risky. FHA mortgages are dubbed ‘non-conforming’ loans due to their liberal requirements enabling individuals with credit issues, first-time home buyers, and those in a lower-income bracket to own a home. This type of home loan boasts numerous advantages over traditional loans:
1. Low down payment
2. Low closing costs - Borrowers may include the closing costs in their FHA mortgage amount. Typically, the closing costs range from 2 to 3% of the mortgage amount.
3. Easy credit qualifications - The requirements for an FHA home mortgage are much less stringent than those for a conventional mortgage. To satisfy the income criterion, applicants must usually show 2 years of regular employment and the same or an increasing income over the last two years. Any bankruptcy filing must be at least 2 years old, and the borrower must have since re-established a good credit rating. Consumers who have foreclosed must have done so more than 3 years ago and have since rebuilt their credit. A consumer’s mortgage payment should constitute approximately 30% of his or her gross income.
4. Flexibility on the debt-to-income ratio - FHA home loans allow debt-to-income ratios that are higher than those mandated for conventional loans.
5. No credit score requirements - Applicants with a less than stellar credit report (i.e. a credit score below 600) or with financial problems may qualify for this type of loan. Even prospective borrowers with no credit history are eligible for a FHA home mortgage if they can demonstrate fulfillment of past financial obligations. Individuals who have filed for bankruptcy are also not disqualified, provided that the bankruptcy was discharged at least two years beforehand and that they have since maintained a good credit score. Similarly, foreclosure is not a disqualifying event, as long as it took place at least three years ago and that the applicant has since maintained solid credit.
6. Low interest rates - FHA mortgage rates are lower than those of conventional loans. This is because the FHA’s backing of the loan significantly diminishes the lender’s risk. To lower the mortgage’s rate of interest, FHA loan borrowers pay points (1 point equaling approximately 1% of the mortgage’s value) to the lender.
7. Low mortgage insurance - The mortgage insurance is financed into the FHA home loan, rather than paid out-of-pocket. Borrowers are required to pay private mortgage insurance (PMI) on their FHA mortgage in order to protect the lender against default.
Currently, consumers may apply for a FHA mortgage amount ranging from $271,050 to $729,750. While there are no income limits, these loans are very popular among individuals in the low to middle-income bracket. Qualifying properties include condos, single-family homes, modular homes, double-wide manufactured houses, and 2-to-4 unit properties. FHA home mortgages serve a myriad of purposes including the following:
First home purchase - Compared to the standard 5% down payment required by conventional lenders, a minimal 3% down payment is required on FHA home loans. At times, the down payment may be as low as zero when the FHA loan is supplemented by other kinds of loans. The loan usually includes the closing costs and fees. One-to-four unit properties are eligible for FHA first home purchases.
Refinancing - Consumers may refinance a traditional loan to a FHA home mortgage. They may also consolidate a number of mortgages into an FHA loan. In the process referred to as streamline refinancing, the need for paperwork is eliminated, and credit, income, and employment checks are waived. FHA refinances result in a lower interest rate and monthly payments.
Fixer-upper - Through an FHA mortgage, borrowers may purchase a home, renovate or repair it, and refinance the amount due and include the repair costs in one loan.
Reverse mortgage for seniors - To qualify for an FHA reverse mortgage, an applicant must meet the following requirements: (1) be a homeowner or have a small mortgage balance that can be repaid at the closing, (2) be 62 years of age or older, and (3) live in the home. Reverse mortgages allow borrowers to transform part of the equity in their home into cash for purposes of effectuating home improvements, paying off debts, or preventing foreclosure.
Energy-efficient improvements - FHA offers energy efficient mortgages (EEMs), which allow borrowers to include the cost of energy-efficient features or improvements in the FHA mortgage amount. The applicant is not required to qualify for the supplemental funds or make a down payment on the EEM.
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what happens to you when you have a mortgage loan and you lose your job and you can’t pay the mortgage anymore?
My credit score is less than 600 i know that FHA loan programs are flexible with less than perfect credit but, FHA approve lenders still have their criteria which might require a score above 620. Am i able to get approved directly by FHA or is their a list of lenders that will work with me.