FHA Home Loan
The Colorado Mortgage Guy is your FHA Home Loan expert. The Federal Housing Administration also know as the “FHA” has been in the United States since the 1930s. FHA is also know as the Federal Housing Administration. It was created to help more families live the American dream of home ownership. FHA is a layer of the Federal government that basically insures the bank on private loans that are taken out for home ownership. Today FHA is a part the Department of Housing and Urban Developments office or HUD. Its main role is to create a buffer and to reduce risk for lenders.
Why should you get a FHA loan?
Higher loan limits, lower home prices and a low down payment requirement have made these government-insured loans a more secure bet for homeowners. As a result, more homes now qualify for an FHA loan and you can now purchase a higher priced home using an FHA loan than in past years.
Not only that, but stricter traditional loan requirements, such as higher down payments and higher required credit scores, have forced many homebuyers to turn to the less-restrictive Colorado FHA loan.
The huge benefit right now is the ability to still get into a home with a low down payment. That’s the reason why FHA has gone from 3 percent of the market a couple of years ago to 50 percent of the market today.
However, things may be changing. There’s a great incentive to buy right now as there’s a proposal out there to change the FHA loan program to require increased down payments, higher credit scores and more expensive FHA insurance premiums. Still, it takes an act of Congress to change FHA loan requirements, and it may be some time before FHA tightens the reins.
Looking for an FHA Mortgage? FHA mortgages can be used for purchasing a new home or refinancing an existing loan. FHA loans typically have two types of mortgage insurance. They will have an up front mortgage insurance premium and a monthly mortgage insurance premium. Both of these are calculated into your new payment. When buying a new home or refinancing your home the upfront premium will be added to your loan amount and it is not typically an out of pocket expense.
You will typically need to have 3.5% of the purchase price for a down payment with a FHA loan. All of this money can come from a gift from a relative. FHA also allows for down payment assistance programs, HUD $100.00 down programs, and the ability to borrow money to fix up an existing property or you can finance in improvements on a property you are purchasing. There are specific guidelines and you should call an expert for more details.
Remember the mortgage insurance does not protect you. This only helps the bank and Lender if you were unable to make the payments. You can use an FHA loan to do improvements to an existing or a new home, to pay off bills, to lower your rate from an FHA or conventional loan and to make your existing rate a fixed rate.
FHA guidelines can be easier to qualify for then other types of loans.
If you have at least 3.5% equity in your home, getting a FHA Loan may be a better deal for your Colorado home.
FHA credit underwriting standards are less rigorous than Fannie Mae’s and Freddie Mac’s.
A MIP is required, but you are allowed to finance it, and this amount is not included in your loan to value calculation.
You can shop for Colorado FHA loans, look at options available, and choose the most competitive Colorado FHA loan provider.
What to Know about FHA Loans
Here are seven things to know about getting an FHA Loans today:
You should go to an FHA-approved lender or broker, such as the Colorado Mortgage Guy. You should use a broker certified by the NAMB. For a list of FHA approved lenders and brokers, go to the U.S. Department of Housing and Urban Development Web site.
You can expect a low down payment. An FHA loan requires only a 3.5 percent down payment and you can get that down payment as a gift. For a borrower low on down payment funds, this is a great advantage. You can get a gift from an approvable source such as an employer, relative or a nonprofit or government agency that offers down payment assistance.
Because FHA insures your mortgage, lenders may be more willing to give borrowers loan terms that make it easier to qualify. According to HUD, in a 19-month period from January 2008 to August 2009, the average credit score for FHA-insured mortgage loans increased from 621 to 692. For conforming loans, credit scores in this range will require a 20 percent to 30 percent down payment. It’s up to the underwriter to determine the acceptable credit score.
First-time buyers have some advantages. A big advantage is that they can have a non-occupant co-borrower.
For someone just graduating from college that has nominal credit, a parent can co-sign. Then, once the kid is in better financial shape, he or she can assume the loan without having to refinance to possibly higher rates.
Sellers can contribute to closing costs. Sellers can pay up to 6 percent of the purchase price. So if you have a $100,000 home, they can pay up to $6,000 toward closing costs. In a traditional loan, sellers can only contribute up to 3 percent.
There’s help in finding the FHA loan limits in your area. FHA loan limits – the maximum amount a homebuyer can borrow varies based on a variety of housing types and the state and county in which the property is located. To look up your area’s loan limits, go to the HUD Web site.
Some counties have loan limits below $300,000 while others have limits as high as $729,000.
For FHA approval, you’ll need to document your income well. FHA does have some rules that are tougher than with conventional loans. For example, in order to get approved for an FHA loan, you must account for every penny (of income) that comes in, he says. Conventional loans start with lower qualifying ratios.
Fannie Mae and Freddie Mac’s qualifying debt to income ratio is approximately 28 percent (percentage of gross monthly income used to pay housing costs) to 36 percent (the percentage of income that goes toward paying all recurring debt payments including housing); FHA’s starting ratio is 31 percent to 43 percent. They also want income documentation to prove you have a stable source of income before approving the loan.
For a moderate-income buyer who can’t afford a large down payment, a FHA mortgage loan can be a viable option.