• FHA Loan
  • FHA Loan

  • What is the Federal Housing Administration (FHA)?

    The Federal Housing Administration, also known as FHA, insures loans made by FHA-approved lenders. The FHA is the largest insurer of mortgage in the world, which they insure mortgages on single family, multifamily, and manufactured homes since 1934.

  • First Time Home Buyers and Advantages of an FHA Loan

    The FHA is a government entity that guarantees mortgages issued through the Department of Housing and Urban Development (HUD), which sets the rules and guidelines for FHA mortgages.  The FHA’s primary responsibility is to insure mortgages that meet FHA underwriting guidelines and do not lend money. 

    FHA loans benefit borrowers because of the limited funds needed for the down payment on a home:

    • The minimum required investment (MRI) is 3.5% percent for borrowers with a Fair, Isaac and Company (FICO) score of 580+ that meet FHA guideline requirements.
    • Borrowers with less than a 580 FICO score are required to meet the MRI of 10% down.
  • Benefits to an FHA Loan Over Conventional

    • Conventional loans have stricter guidelines than FHA loans when it comes to credit and income, but not with appraisals.
    • Not only are there benefits to the borrower, but there are also benefits to the lender. The lender issues loans based of risk – usually the higher the risk, the higher the interest rate, but with FHA mortgages, the risk is reduced due to FHA insuring the loan.
    • FHA is far more forgiving when it comes to unpaid collections, lower scores, housing ratios, bankruptcy, foreclosures, deed in lieu of foreclosures, short sales, tax liens, charge off accounts, and even lates. Borrowers must wait 3 years for short sale/foreclosure and 2 years for bankruptcy.
    • Depending on Fannie Mae’s Desktop Underwriter and Freddie Mac’s Desktop Loan Prospector Automated Underwriting System (AUS) results, some collections are not required to be paid off.
    • FHA understands that borrowers have went through hardship during the mortgage and real estate collapse of 2008 causing borrowers to have lower FICO credit scores.
    • FHA encourages home ownership through insuring FHA mortgages issues through FHA approved lenders. 
  • FHA Loans – Bankruptcy and Foreclosure

    • Borrowers who have reestablished their credit with a prior bankruptcy and foreclosure can still qualify for a FHA Mortgage after three years of foreclosure, short sale, deed and lieu and 2 years of bankruptcy.
    • The waiting period after a foreclosure, deed in lieu of foreclosure, and short sale is 3 years to qualify for an FHA loan.  The clock starts when the recorded date reflects on public records and not when the house was surrendered to the lender or sheriff sale date.
    • There is no waiting period after a Chapter 13 Bankruptcy discharge, but require manual underwriting.  Manual underwriting requirements are stricter than approved results running Fannie Mae Desktop Underwriter and Freddie Mac Loan Prospector.
    • If you have applied in the past for a loan and were denied, it was most likely because a lender has overlays on top of the FHA underwriting guidelines.
  • Non-Occupant Co –Borrowers, Gifts and Concessions

    • FHA can be more lenient when it comes to borrower with high debt to income ratios. When debt to income ratios are an issue, FHA will permit the borrower to add a co-borrower. Non-occupant Co-Borrowers have to be related to the borrower by marriage, law, or blood. 
    • FHA allows up to 6% sellers concession towards closing costs and fees.
    • Will allow 100% gift funds for the minimum required investment/down payment and closing costs.  Acceptable sources for gift funds need to come from a relative of the buyer, which a gift letter needs to be signed stating that it does not need to be repaid.