FHA LOANS

WHY AN FHA LOAN MIGHT BE RIGHT FOR YOU

If you’re dreaming of being a home owner but not sure if you have good enough credit to get the financing you need, an FHA loan could be the solution for you. Unlike a conventional loan, an FHA loan allows for a low down payment, making it an attractive option for a home buyer with a lower credit score. The FHA loan requirements include monthly payment calculations that account for FHA mortgage insurance. The FHA mortgage program was created in the 1930’s to help borrowers get the homes they want and to give mortgage lenders peace of mind.

With a guaranteed that loans will not be defaulted on, lenders are more willing to offer favorable terms and rates for people with less than perfect credit, or even no credit in some cases. Down payments can be as low at 3.5% and even can be covered or “gifted” by a family member or employee.

Sound too good to be true? Read on to find out more.

WHAT IS AN FHA LOAN?

If you are 62 years or older, own a home and are cash-strapped, you may consider applying for a reverse mortgage to either supplement your income or pay important expenses like healthcare.

This type of loan has become a popular source of cash because it allows homeowners to convert a portion of their home’s equity into cash, without losing ownership of the house, which makes it a great financial planning tool.

MEANING OF REVERSE MORTGAGE

So exactly what is reverse mortgage? As its name suggests, it is a special type of loan where the borrower, a homeowner, receives monthly payments from the lender. The concept may be confusing at first because the opposite of what we think when we think of mortgages.

To make the concept easier to understand, think of a credit card. Let’s say you have a maximum credit limit of $10,000 dollars on your card, and you only owe $2,000. This means that you can still ‘borrow’ or use up to $8,000 more for whatever you need before it is maxed out.

If we are using the same numbers for a reverse mortgage, you can assume that you originally took out a loan of $10,000 dollars for your house. Over time, you have paid back $8,000 of that, so you now only owe $2,000 left. If you qualify for a reverse mortgage, you can tell your lender you want a certain amount of money each month deposited into your bank account, and you understand that this will add on to the total amount you owe them.

So if you receive $100 each month, for twelve months, at the end of the year, you will owe $3,200 on your mortgage, instead of only $2,000 when the year started. With a reverse mortgage, you get money now, but the amount you owe overall will increase, like a credit card.

WHO DOES REVERSE MORTGAGES?

If you’re interested in a reverse mortgage there are many institutions and lenders to choose from. However, it is important to know they don’t all offer the same rates. Always try to compare to find the best lender in your area to make the process quick, easy, and tailored to you. HomeRate Mortgage has years of experience and will work to find the best option according to your needs.

No matter which lender you go with, they will need to make a valuation of your house, to see how much it is worth, how much you owe, and then they will be able to tell you how much you can get with a reverse mortgage based on your home equity.

One good thing about a reverse mortgage loan is that it is not taxable. That means whatever money you get is entirely tax-free, and therefore the loan won’t affect your Medicare or Social Security benefits in any way. The goal of the loan program is to help the aging population with limited income so that they can manage their necessary expenses, particularly healthcare, not to make it more difficult to qualify.

BENEFITS OF FHA LOANS

1) EASY QUALIFICATION REQUIREMENTS

The fact that FHA loans are insured by the federal government makes a mortgage lender more relaxed and willing to approve these types of mortgages. Contrary to most other loans, homebuyers with questionable credit scores (as low as 500) and history can still access the FHA loan because of its lower requirements.

2) NO CREDIT

As an applicant, you will be required to have two lines of credit, such as bank cards, car payments, student loans, or something similar. If your credit history is not sufficient, you can still try to qualify through a substitute method.

3) LOW INTEREST RATES

FHA loans attract some of the lowest interest rates in the mortgage sector. Lower rates mean more money saved to spend elsewhere.

4) HISTORY OF BANKRUPTCY AND FORECLOSURE IS OKAY

You can still qualify for an FHA loan even if you have a history of bankruptcy or foreclosure. Just make sure your current situation reflects reestablished reliable credit and solid recent payment history.

5) LOWER FEES

It is not only interest rates that are low with FHA home loans; fees too are offered at discounted rates compared with other loans. This applies to costs such as mortgage insurance premiums and closing cost.

6) IT IS ASSUMABLE BY A NEW BUYER

If for any reason you want to, or need to sell your FHA-financed home, the new buyer can take over the loan for you. This is not automatic, but a common practice. That means once you sell the house, you don’t have to worry about the loan, penalties, interest, or other conditions anymore.

FHA LOAN LIMITS

The maximum loan amount of financing you can receive varies from state to state and county to county. Generally, the amount an individual is able to borrow is capped at $625,000. However, this limit can be raised to $729,750 in places that are considered higher cost areas. These limits are constantly updated, so be sure to check the current maximums when thinking of applying.

BASIC GUIDELINES

When applying for an FHA loan, you’ll need to work with an FHA lender or private lender. While most lenders will take you through the basic ins and outs of the mortgage requirements,  The loan officer will guide you through the process and help you determine the right loan option. it is always good to be informed. So here are some tips and tricks that might come in handy.

• Get an FHA-approved lender
  Although it is called the FHA loan, the FHA is not the actual lender, but just an insurer. Interested lenders can choose to partner with the FHA to offer the loan to home buyers. Before you put pen to paper on any deal, make sure that lender is actually approved by the FHA.
• You can transfer certain costs
  The FHA allows you to transfer payment of certain expenses like credit reports, appraisal fees, and closing costs to the seller, builder or lender. Sellers and builders usually accept these cost as an incentive because it means a buyer is interested now and they will be able to sell, and get their money, quickly.
• You can get the loan for repairs
  The FHA mortgage program isn’t just for your initial purchase, but also has a special loan known as the 203(k) that is targeted for homeowners who want to borrow money for home repairs. You can get up to $35,000 for non-structural improvements. This increases the overall value of your house.
• Financial hardship relief can save you
  If you are having difficulty making your monthly payments, some lenders are able to negotiate more lenient terms and conditions, such as extending the length of your loan, or offering a lower interest rate for a temporary period. Note that the hardship must be caused by a genuine reason, such as financial hardship resulting from an illness and not because of mismanagement of funds.
• Two types of mortgage insurance
  All FHA loans require you to have two mortgage insurance premiums (MIP). The first is an upfront premium of 1.75% of the total amount borrowed. That means if you borrow $100,000 the premium will be valued at $1,750. Usually, the premium is payable after you receive the loan and you can add it on as part of the loan.

The second is known as the annual premium. Despite the name, it is payable on a monthly basis. It varies from one borrower to another depending on the amount borrowed, duration of the loan, and the loan-to-value ratio (LTV). Always go with a respected experienced lender, like HomeRate Mortgage, who can offer you quick quotes, low rates, and quick closing times.

REQUIREMENTS

Many qualifications for an FHA are standard with one notable exception- a much more relaxed requirement for minimum credit score when compared to other types of loans.

Here are the qualification standards:

1) CREDIT SCORE AND HISTORY

One of the main draws of an FHA home loan is the relaxed credit requirement. Most providers tend to look at the big picture when it comes to financial standing instead of rejecting an FHA borrower because of any one criteria.

Generally, people with credit score is less than 500 are not eligible for an FHA loan. Those with a score of 500 to 579 will be required to make a down payment of at least 10%. If yours is 580 or above, you can get the FHA loan with a low down payment of 3.5%.

2) STEADY EMPLOYMENT HISTORY

You must show that you have been employed steadily and have a reliable source of income. You will have an advantage if you have worked for the same employer for at least two years and are projected to keep your job for at least another 3 years.

3) U.S. CITIZENSHIP

You must be a valid U.S citizen with a social security number. You must also be of sound mind and legal age to enter the mortgage contract.

4) DEBT TO INCOME RATIO

Lenders want to make sure you’re in a financial situation in which you’ll be able to make the monthly payments. As a guideline, most lenders want to see that monthly mortgage payment, insurance, and property taxes do not exceed 31% of your gross income

If you add in other monthly expenses, such as car payments, student loans, and credit cards, it should not be more than 43% of your monthly income. With good credit, and a strong employment history, lenders may be more flexible with these benchmarks.

5) 3.5% DOWN

You will be required to make at least a 3.5% down payment. As noted before, borrowers with shakier credit may have to put down 10%.

6) TYPE OF PROPERTY

The FHA loan will only be given to you if you are using it to finance your primary residence. Note that the house must meet certain safety and sanitary minimum standards. If it doesn’t, and the seller is not willing to make the necessary repairs, then you might be forced to do the repairs yourself, as well as pay for those cost out of pocket, before you apply for the loan. Remember that it will be inspected before your loan is approved.

APPLICATION

Applying for the FHA loan is a very simple process when using a trusted FHA approved lender. At HomeRate Mortgage we work with you and your information to get you the best conditions possible so you can get into a home as soon as possible.

FEDERAL HOUSING AUTHORITY ELIGIBILITY GUIDELINES

The FHA sets the guidelines for all FHA loans.  You must meet all the criteria that follows:

• Steady employment history for the past two years
• Valid Social Security Number (SSN)
• The home must be your primary residence
• The home must be appraised by a FHA-approved appraiser
• For the best rates a 30% debt-to-income ratio is required
• To qualify for 3.5% down, you must have a credit score of 580
• To qualify for 10% down, you must have a credit score of 500
• 2 years with no bankruptcy
• 3 years with no foreclosure
• The home must meet certain standards or be repaired to meet those standards