FHA Loan – Federal Housing Administration
The Federal Housing Administration, also known as FHA, insures loans made by FHA-approved lenders. The FHA is the largest insurer of mortgages in the world. They insure mortgages on single family, multifamily, and manufactured homes since 1934.
First Time Home Buyers | 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. FHA’s primary responsibility is to insure mortgages that meet FHA underwriting guidelines and do not lend money.
An FHA loan benefits borrowers because of the limited funds needed for the down payment on a home. The minimum down payment is 3.5% percent for borrowers with a 580 FICO credit score or higher. Down payment of 10% is required with under a 580 FICO credit score.
Benefits to an FHA Loan Over Conventional
Conventional loans have stricter guidelines than a FHA loan when it comes to credit and income, but not with appraisals.
FHA loans benefit both the borrower and lender.
- The lender issues loans based of risk – usually the higher the risk, the higher the interest rate.
- For 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.
- Depending on the Automated Underwriting System (AUS), some collections may not be required to pay off.
FHA understands that borrowers have went through hardship during the mortgage and real estate decline in 2008 causing borrowers to have lower FICO credit scores. FHA encourages home ownership through insuring FHA mortgages issued through FHA approved lenders.
FHA Loan – Bankruptcy and Foreclosure
Bankruptcy waiting period:
- Chapter 7 bankruptcy waiting period is 2 years from the discharge date.
- There is no waiting period after a Chapter 13 bankruptcy discharge, but requires manual underwriting.
- Can purchase and refinance during a Chapter 13 as long as:
- 12 satisfactory payments have been made to the trustee.
- Borrower has court approval.
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.
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.
Gifts can be used for 100% of the 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.
FHA Mortgage Limits
Look up FHA Mortgage limits by county by using FHA’s Mortgage limits page.
FHA Approved Condos
The FHA condo approval page allows users to search for FHA-approved condominium projects by location, name, or status.