How to apply for a fha home loan

What does the FHA loan mean?

FHA homebuyerThere are three types of government mortgage loans that are available to prospective home buyers; FHA, VA and USDA. The federal government does not "make" or originate mortgage loans, but provides default insurance to lenders who offer government backed mortgages. Lenders are more willing to extend mortgages to home buyers with lower down payments and low credit scores because of the default insurance. The goal of the government backed insurance program is to promote home ownership for home buyers who require a low down payment or cannot meet the lending requirements of traditional mortgage programs. The FHA loan gives low to moderate income borrowers a chance at home ownership.

What is the Federal Housing Administration?

The Federal Housing Administration (FHA) is a subsidiary of the Department of Housing and Urban Development (HUD). The FHA establishes the lending requirements/guidelines for FHA approved lenders and home buyers. The FHA determines the cost of the default insurance that is paid at closing/settlement. There is an upfront fee, called a funding fee and a monthly fee called monthly mortgage insurance (mip). The upfront funding fee can be paid in cash or financed with the loan amount. In the event of a foreclosure, the government uses the funding fee and monthly premiums to reimburse the lender for the mortgage balance and then takes ownership of the foreclosed home. FHA owned homes are called HUD houses or FHA foreclosures.

Can I get an FHA loan with bad credit?

The FHA mortgage program will accept credit scores as low as 580, however, most lenders usually require a minimum credit score of 600 - 620. FHA lenders are permitted to require higher credit scores. The FHA is also more lenient with Chapter 7 bankruptcy. Other advantages of the FHA home loan program include easier income requirements and permits down payment and closing cost assistance from relatives and close friends. In fact, it is possible to have the entire down payment and closing costs paid for by relatives and close friends. The home seller is permitted to pay a percentage of the buyer's closing costs (seller assist). The FHA program also permits co-borrowers (co-signers) to help the home buyer qualify for the mortgage.

Disadvantages of the FHA Home Loan

Home with an FHA loanThe Federal Housing Administration sets a borrowing limit. The maximum mortgage limit is established for each US county each year by Congress. The typical lending limit for a single family home and approved FHA condominium is $294,515. There are exceptions for high cost counties. The FHA program has higher limits for 2, 3 and 4 unit owner occupied properties. See FHA Limits Look Up

The second disadvantage is that selling a home to a buyer using an FHA-insured loan may cost the seller more money than if the buyer used more traditional financing. The reason is due to the stricter appraisal requirements. Sellers must remediate flaky lead based paint and meet other construction standards. The third disadvantage to FHA loans is the mortgage insurance premium (MIP). The additional upfront cost increases the loan amount (if financed) and thereby increases the monthly mortgage payment. The monthly mortgage insurance cannot be removed even with a down payment of 20%. In spite of the limitations, the FHA loan is the best mortgage for credit and cash strapped home buyers who cannot get conventional financing.

What are the qualifications for an FHA loan?

Home buyers must have an acceptable credit history, are currently employed and have been employed for a least 2 years (there are some exceptions) and meet other sensible approval guidelines. The approval requirements are a bit more stringent with conventional/conforming mortgages.

Are FHA loans assumable?

Yes, all FHA mortgages are assumable, although the conditions under which an FHA mortgage may be assumed is dependent on when the mortgage was taken out. Generally, FHA mortgages beginning before December 1, 1986 do not contain any restrictions on assumability. Some FHA mortgages that closed in 1986 through 1989 can contain language specific language regarding assumption. FHA mortgages that closed on or after December 15, 1989 require the borrower to meet credit qualification. The assumption should be handled by an approved FHA lender. FHA Assumption.pdf

Are FHA loans bad?

Fha loans are a great way to purchase a home due to the low down payment, credit score requirement, and flexible approval guidelines. But if you have a large down payment and a high credit score, then yes, the FHA program is a bad mortgage choice.

Do FHA loans require pmi?

FHA loans require pmi, however, the term is "MIP", mortgage insurance premium for FHA loans. Learn more

How many FHA loans can you have

The FHA program requires the borrower to reside in the home as the principal residence. There are a few exceptions however. A change in family size and relocation due to employment. Non-occupying co-borrowers may also be eligible for a second home, provided the borrower intends to occupy the second home as their principal residence. The FHA loan program does not permit investors. Read more

When does FHA mortgage insurance stop?

If the periodic (monthly) mortgage insurance premiums are paid up for an FHA case before schedule (i.e., accelerated payments were made and the unpaid principal balance is 78% or less), the month and year the last monthly insurance premium is assessed (final bill date) can be changed by the servicer or holder of the mortgage. However cancellation of the monthly premium can only be used for active risk-based cases that have a closing date after December 31, 2000 and a case number assignment date before June 3, 2013 and meet the eligibility requirements described in Mortgagee Letter 2000-46 (with Attachment).
For mortgages with an FHA case number assignment date on or after June 3, 2013, the FHA insurance can be terminated by the servicer or holder if the mortgage is paid in full before the maturity date. Source: FHA/HUD