FHA Loans2019-01-21T10:56:15+00:00

FHA Loans

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WHAT IS AN FHA LOAN?

FHA loans are insured by the Federal Housing Administration and can be a great option for people who would normally find it difficult to qualify for a mortgage due to their income level, credit history, or their ability to put down a sufficient amount of down payment. For borrowers with a credit score of 580 or higher, these loans allow a down payment of just 3.5% of the total cost of the home. For those with a credit score between 500 and 579, a 10% down payment is required.

WHAT ARE THE FHA LOAN LIMITS AND CAN YOU QUALIFY?

A consultation with a member of our professional FHA loan team can help you quickly identify if you meet the loan requirements for an FHA loan, and can be  arranged by calling 858.401.3332

EXPANDING HOME OWNERSHIP THROUGH FHA LOANS

Whether you need a reduced down payment, or have not-so-perfect credit, an FHA loan remains one of the easiest loans to obtain today, benefiting first-time  home buyers, as well as those who plan to make substantial repairs and need additional cash set aside for those improvements. But there are qualifying factors for both the borrower and the home you choose. FHA loans require that a FHA-approved appraiser conduct an appraisal and it must meet certain standards of condition.

REDUCED DOWN PAYMENT AND FLEXIBLE FUNDS SOURCING

While a conventional loan typically requires a down payment of 20 percent, the down payment on an FHA loan can be a low as 3.5 percent, which has been key to  expanding home ownership for decades. Furthermore, the source of the funds used for a down payment can be (in part or whole) a gift from a family member, as well as funds obtained through a grant from a state or local home buyer’s assistance program. Other loan types often require that the source of funds used for a down payment be exclusively verified.

CLOSING COSTS

Closing costs include an appraisal, a credit report, title expenses, and more, and can often be covered by the seller, or the lender themselves. A home seller may, for example, agree to cover all or part of the closing costs as part of the negotiated price. Closing costs can also be included in the loan, although a higher interest rate may apply.

MORTGAGE INSURANCE

Mortgage Insurance for an FHA loan is a two-part process: an initial premium (1.75 percent of the base loan amount) paid upfront, and an annual premium  broken into monthly installments, included as part of the total monthly loan payment. The upfront premium is typically included in the loan. The total amount of the loan, as well as the years financed will determine the annual/monthly premium installment. Borrowers who make a larger down payment can typically reduce, or avoid additional mortgage insurance fees, as they have personally assumed more of the risk with a larger down payment.

For more information about applying for an FHA loan, speak to one of our experienced team professionals by calling 858.401.3332

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Answers to Your Questions

There are a lot of factors to consider when determining how much you can afford, but a good rule of thumb is to not let your monthly mortgage exceed 25% of your monthly take-home pay. Following this guideline will help you manage additional homeownership costs such as maintenance and repairs, while still keeping room for other financial goals like retirement and savings. There are also tons of affordability calculators you can find online, like this one!

Pre-Qualification and Pre-Approval both estimate the loan amount that you are likely to qualify for. This is an important first step in the home buying process to ensure you are looking at the right homes that fit your budget.

Pre-Qualification and Pre-Approval are often used interchangeably and can both help you stand out amongst the homebuyer competition. Both require you to supply an overview of your financial history such as your income, assets, debts, and credit score. However, most people look at pre-qualification as step one and pre-approval as step two because pre-approval requires formal documentation and verification.

The amount of time it takes to close a loan will differ from lender to lender, but a top mortgage lender should be able to close your loan within 30-45 days from application. Not having the proper documentation or having errors in your documentation may result in delays so it’s important to make sure you have all of your materials properly prepared.

Mortgage lenders will require you to provide certain documents in order to assess your ability to repay your loan. The Great Recession was due in part to borrowers not being adequately vetted for their ability to repay their loans. For this reason, the pre-approval process now requires significantly more paperwork. You will be asked to provide documentation regarding your employment and income, savings and assets, and outstanding debt.

Some of these documents include:

  • Tax returns
  • Pay stubs/W-2s
  • Bank statements
  • Credit history
  • Gift letters
  • Renting history
  • Work history

Most conventional loans require at least 5% down, but 20% is typically recommended. Mortgage companies often require borrowers to pay private mortgage insurance until they have 20% equity in the home. This additional fee is put in place to protect mortgage companies against borrowers who stop making payments on time.

Although this is standard, there are also many different loan programs that can help you purchase a home with less than 5% down. For example, some Veterans can qualify for VA loans that allow them to purchase a home with 0% down and no PMI. FHA loans can also allow first time homebuyers to purchase a home with as little as 3.5% down.

Your lender will be able to assess your financial situation and determine which programs you qualify for and which ones are best for your financial goals.

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