FHA Home Loans

Many people put off buying a house because  ” Let’s Face It ” getting a loan can seem very overwhelming, 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 a 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 a FHA Loan Works

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

Pros and Cons of a 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 500.  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.

There is no minimum or maximum income requirement to Qualify for a 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.

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.