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FHA Home Loans

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FHA Home Loans 

Many people put off buying a house because – let’s face it – getting a loan can be very troublesome, especially if you’re not in the best financial shape.

Are you concerned that your credit score might get in the way of your chances to get a home loan? Do you think you can’t afford the down payment? Have you gone through foreclosure or bankruptcy in the past? 

Are you wondering if an FHA-insured loan is the right home loan program for you? If you’ve always wanted to own a home, but the situations mentioned above keep you from going for it, FHA loans may be the way to go. 

How FHA Loan Works

An FHA loan is a mortgage program insured by the US Department of Housing and Urban Development (HUD).  The FHA loans aim to boost the housing market and improve housing conditions across the country by making it easier for persons with marginal credit or lower incomes to get a home loan. 

Texas FHA lenders can offer loans with less rigorous conditions to qualified borrowers with the government’s guarantee.

Pros And Cons Of An FHA Loan

It’s not difficult to get approved for an FHA loan, as long as you have a stable source of income, enough assets for the down payment and reserves, and a credit score of at least 580. 

  • Credit

FHA loans require a mortgage FICO score of at least 580 to qualify for a 3.5% down payment. If your score is below 580 down to 500, you may still be eligible with a 10% down payment, and certain restrictions will apply.

  • Income

There is no minimum or maximum income requirement to qualify for an FHA loan. What’s essential is stable employment and income. A borrower must have a 2-year verifiable work history; ideally, employed in the same line of work for at least two years. Also, you must be a U.S. citizen or permanent resident with a valid social security number. 

  • Assets

Borrowers must have sufficient assets to show where their source of funds to close the loan will come from. Besides the 3.5% down payment requirement, there are also closing costs and prepaid items to contend with. However, FHA allows gifts funds for the down payment and up to 6 percent in seller concessions for closing costs and prepaid items.

While the FHA loan has many positive aspects, it has certain drawbacks that can be huge deal breakers for some borrowers.

  • Property Standards

To be eligible for an FHA loan, a home must meet strict structural and safety requirements. An FHA-approved appraiser will conduct an inspection to determine whether or not the home meets FHA’s occupancy and property standards. If the home does not pass the inspection, the owners may have to renovate and make the necessary repairs first, or the borrower can look for another property. 

  • Mortgage Insurance Premiums

The most considerable drawback of getting an FHA loan is has to pay two different kinds of Mortgage Insurance Premiums (MIP). The first type of insurance is paid upfront, while the second type is payable monthly as part of your mortgage payments. 

In addition, the Mortgage Insurance Premium on FHA loans is for the life of the loan. Unlike conventional loans, the insurance payments do not stop after 20 percent of the equity has been satisfied. The only way to eliminate FHA’s Mortgage Insurance Premium is to refinance to a conventional loan or completely pay off the entire mortgage.

Apply For An FHA Loan

As with most things in life, the FHA loan has two sides. And because every situation is different, it is up to you to decide if the pros outweigh the cons for you. If you’d want a deeper understanding of the credit’s nature and standards, consult our FHA Loan Specialists to get started on your path to homeownership.

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FHA Purchase Loan

FHA Home Loans are mortgage loans for 1st time home buyers, buyers with limited credit, buyers with less than perfect credit and buyers with higher debt to income ratios.  As the goal of FHA is to make homeownership more attainable, FHA underwriting guidelines are less strict than other mortgage loan programs.  This FHA flexibility allows for easier loan qualification making the barrier to homeownership less challenging.
  • Simple Qualifying
  • Small Down Payment
  • Seller Paid Closing Costs to 6%
  • Flexible Underwriting
  • Higher Debt to Income Ratios Allowed
  • Lower Credit Scores Allowed
    • 580 with 3.5% Down Payment
    • 500 with 10% Down Payment
  • Manufactured Housing OK (Subject to Restrictions)

FHA Refinance Loan

FHA offers a streamline refinance program that simply reduces the interest rate and lowers the payment or shortens the term of the loan.  This rate and term option can be fully documented loans, or can be reduced documentation.  The other FHA option is a cash-out refinance allowing homeowners the ability to access the equity in the property. (Not Allowed in Texas)
  • Streamline – Rate and Term Only
    • No Appraisal
    • No Income Verification
  • Full Documentation
    • Rate and Term
    • Closing Costs Can be Rolled In
    • Lower Credit Scores Allowed
      • 580 with 3.5% Down Payment
      • 500 with 10% Down Payment
    • Manufactured Housing OK (Subject to Restrictions)

FHA 203K Loan

FHA offers a rehabilitation loan that can be used either with a purchase of a new home or as part of a refinance.  The FHA 203K Home loan is offered to allow homeowners to purchase less than perfect homes or to bring the current home up to date with improvements.

Purchase and Refinance

On Purchase Transactions, Max Loan Amount is lesser of:

  • Adjusted As-is Value plus allowable financeable rehabilitation cost plus fees/reserves; or
  • 110% of After-Improved Value
    (100% for condominiums including site-condos)

On Refinance Transactions, Max Loan Amount is lesser of:

  • Existing Debt plus financeable Rehabilitation
  • Cost plus Prepaid and Closing Cost; or
  • 97.75% multiplied by lesser of:
  • As-is value plus rehabilitation cost; • 110% of After-Improved Value
  • (100% for condominiums including site-condos)

Eligible Properties

(Owner-Occupied Only):

  • PUDs (Planned Unit Developments)
  • 1 to 4 Units
  • Doublewide Manufactured Home
  • Condominium (in FHA Approved Projects) & Site-condo

Mixed Use Properties Allowed:

  • A minimum of 51% of the entire building’s square footage must be used for residential use.

FHA 203K Full Rehab

  • Full 203K – allows improvements to exceed the 35K cap on renovations.  The improvements are not limited cosmetic, but can be include major structural including an addition. This can be combined with a purchase or with a fully documented refinance. 

FHA 203K Full Rehab

  • Streamline 203K – allows for up to 35K of improvements to be financed into the loan.   This can be combined with a purchase or with a fully documented refinance. The improvements are typically cosmetic, but can be limited structural as long as the improvements are not for an addition.
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What is a FHA Mortgage Loan?

FHA stands for “Federal Housing Administration” which is part of HUD ”Housing and Urban Development”.Established in 1934 and prompted by the great depression FHA had one goal: to make homeownership affordable. A great step in our nation’s history as the majority of Americans were renters, not having large down payments that traditional banks required.It is important to understand that FHA doesn’t lend money.  FHA instead provides lenders a guarantee that covers the lenders from loss in the event of a foreclosure. It simple terms FHA insures the portion of the loan that a buyer would have would normally had to put down to qualify for a traditional loan, allowing for small down payments to purchase.  All FHA loans require mortgage insurance.  The mortgage insurance comes in an upfront fee, which can be financed into the loan and a monthly fee made through the mortgage payment.  These installments from the payments support the guarantee fund and makes FHA loans possible.  This fee is fixed for the term of the loan and is the same regardless of credit.