FHA home loans are among the easiest loans to qualify for. Instituted during the depression era of the 1930s, the Federal Housing Association since has helped tens of thousands of Americans to buy their first home, or move-up home, with a small down payment and very favorable rates and terms.
However, FHA loans are a bit different than standard conventional financing. If fact, I have written about the advantages of FHA financing before on this blog. So, now let’s jump into the top 5 questions that come up about FHA financing.
1. What are its prime benefits of and FHA loan?
Well, there are several benefits – both to the home buyer and to the lender.
First, the home buyer needs less money to bring as a down payment – just 3.5% of the purchase price as opposed to 5-10% down payment for conventional financing. Second, the Mortgage Insurance, or MI, is less costly monthly than a conventional mortgage at the same loan to value, since a portion of the MI is collected up front at closing and typically rolled into the loan principle balance. Finally, even with less than perfect credit, home buyers still qualify for the best prevailing interest rates.
And, for the Lender, there are advantages as well. Primarily that the risk to the lender should the borrower default on the mortgage is lessened, since a large portion of the loan is insured by the government. That allows lenders to offer the better interest rates to the borrowers without hedging for potential defaults.
2. Who can qualify for this loan?
While there are caveats to what I am about to write, a rule of thumb is that a borrower with at least a 620 credit score, stable job history and the ability to save for the down payment will qualify for a home loan up to 43% of their pre-tax income. And in metro Atlanta FHA will allow for a maximum loan amount of $346,250. And that will buy a lot of home in the Atlanta market!
3. Can someone with blemished credit history qualify for an FHA loan?
Yes. Within reason.
If the damaged credit is due to circumstances outside one’s control, such as illness or job loss, and those circumstances have changed and life is now back to normal, then that can still be approved for an FHA mortgage.
Other things may need to wait and re-establish a good credit history. For example, a borrower will qualify for an FHA mortgage 1 year into a Chapter 13 bankruptcy, or 2 years from the discharge date of a Chapter 7 bankruptcy; and then 3 years after a foreclosure. That said, in each case there needs to be a sufficient credit history that is re-established with on-time payments.
4. What do I need to be approved for an FHA mortgage?
You will need a minimum of the follow documents; and it is helpful to gather these when making loan application:
1. Asset Documentation including 60 days of bank statements and retirement account statements, especially for the account where the down payment will come from. And, if the down payment will be a gift from a relative, then that documentation as well.
2. Residency history and proof of rent for the past two years.
3. IRS Tax returns
4. Income documentation including 2 years W-2’s and 30 days pay stubs.
5. Documentation of any irregularity that could affect the loan, such as a divorce decree itemizing any alimony payments, or bankruptcy discharge papers, etc.
5. Can I buy a foreclosure using FHA financing?
Sure. Just remember that FHA financing is for owner occupied property only. So long as you are planning on moving in and making a home out of your new purchase, then FHA is for you.
A lot of people love FHA financing when buying a HUD foreclosure, or a home that was formerly financed with an FHA loan and then was foreclosed. Many of those homes require only $100 down payment, as opposed to the normal 3.5%.
And, if the foreclosed home needs extensive repairs, then a good option is a Renovation loan through FHA; in industry lingo a 203K renovation loan.
So, there you have it. Answers to several of the top questions. My contact information is below, so if other questions arise about FHA financing in Georgia, just give me a call or drop an email my way.
Similar Posts:
- FHA requests, House passes, increased yearly mortgage insurance premium
- Talking Mortgage Rates To 6 Percent, FHA Streamlines, And The First-Time Home Buyer Tax Credit Extension
- Free Delaware First Time Home Buyer Seminar – August 7, 2010
- Shop for the Best Fixed Rate Mortgage
- Understanding negotiations with a creditor
no comment untill now