FHA Loans

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WHAT IS AN FHA LOAN?

Unlike traditional home loans and mortgage structures, FHA loans, insured by the Federal Housing Administration, can be a great alternative option for prospective buyers who would otherwise find it difficult to qualify for a mortgage due to their income level, credit history, or their ability to place a down payment on their chosen property.

Borrowers are typically eligible to qualify with a credit score of 580 or higher. Loans approved to borrowers within this credit bracket require a down payment of just 3.5% of the total cost of the home whereas those with a credit score between 500 and 579 would require an initial payment of 10% of the home’s cost. The flexible underwriting standards permitted by the FHA allow a broader range of borrowers to become homeowners.

WHAT ARE THE FHA LOAN LIMITS AND CAN YOU QUALIFY?

Wondering if an FHA loan might be right for you? Pick up the phone and contact us today to schedule a  consultation with a member of our highly professional and experienced team. Our goal is to help you quickly identify if you meet the loan requirements for an FHA loan and determine if this loan program will help you along the way to securing your new home. Consultations can easily be arranged by calling us at 858.401.3332

EXPANDING HOME OWNERSHIP THROUGH FHA LOANS

To date, an FHA loan is generally regarded as the easiest loan to obtain. With relatively low qualification standards meant to benefit first time homebuyers, the ability to own a home is made more accessible to a wider range of interested buyers. It is important to keep in mind that while qualifications may be more flexible, there are still additional requirements that must be met by the buyer and their desired property. In order to ensure that the property meets the FHA standards of condition, an FHA-approved appraiser will be required to conduct an appraisal of the property. While this may start to feel slightly overwhelming, your Lending Corner professionals are here to assist you. 

REDUCED DOWN PAYMENT AND FLEXIBLE FUNDS SOURCING

One of the largest barriers into home ownership for interested buyers has been the looming fear of having to make a hefty down payment. While other conventional loans may require as much as a 20% down payment, an FHA loan can require as little as 3.5% down. This lower rate has been largely helpful when it comes to first-time homeowners. One unique feature on an FHA loan is that some or all of the down payment can be a gift from a family member. This differs from other loan programs that often require that the funds used for a down payment be exclusively verified.

CLOSING COSTS

There can be a few unexpected costs when it comes to the closing process. A few to note would be appraisal costs, a credit report, and title expenses. Sometimes these costs can be covered by the seller or lender. These costs can be used by the seller during the negotiation process or even included in the overall loan price (interest rates may apply). Feel free to discuss these costs with both your lender and seller to make sure that you have explored your options and have a good idea of how much money is involved with the closing process. Staying informed and ahead of the fees will help you plan along the way.

MORTGAGE INSURANCE

Depending on the amount of money you are able to place down on your property, you may be required to have Mortgage Insurance for you FHA loan. Borrowers who are able to make a larger down payment can typically reduce, or avoid these additional mortgage insurance fees since they have personally assumed a more substantial amount of the risk. For those that do need Mortgage Insurance, this is typically done through a two part process. First, you will pay an initial premium that equated to about 1.75% of the base loan amount upfront. From there, you will be required to pay an annual premium that is broken down into monthly installments. This payment amount will be determined by the total amount of the loan, as well as the years financed.

For more information about applying for and qualifying for an FHA loan, please speak to one of our experienced team members 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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