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FHA- Federal Housing
Administration- FHA is a government program.
FHA is extremely popular among 1st time home-buyers and
previous home owners. There is no
limit on how many times you may use FHA. The
FHA was created by Congress in 1934. Its
purpose was to generate new jobs through increased construction activity and to
promote the financing and sale of real estate nationwide.
Alliance Financial is a F.H.A. Lender and is endorsed by FHA.
FHA
Insures Loans - Today the FHA is a part of the department of
Housing and Urban Development, and its function is to insure loans made by the
lender against losses that could result from borrower default.
The FHA does not build homes, nor does it make loans.
The FHA is a giant federal insurance agency.
Its insurance program is called the mutual mortgage insurance plan.
Under this plan, lenders who have been approved by the FHA to make
insured loans, either submit prospective borrowers and properties to the local
FHA office for approval or perform the underwriting functions themselves (i.e.,
review of appraisal, credit examination, etc.)
FHA
ASSUMES LIABILITY - As the insurer, the FHA incurs full liability
for losses resulting from default and property foreclosure.
In turn, the FHA regulates many of the conditions of the loan.
FHA regulations have the force and effect of law, and they have done much
to shape the face of the real estate lending industry.
FHA Loans are commonly used to help people buy homes.
An applicant can purchase a 1-4 family home as long as it will be a
primary residence. No second homes
or investor homes are allowed.
FHA
overview -
The qualifying guidelines are
less restrictive, in fact, the qualifying income ratios are 31/43, higher than
the conventional 28/36 ratios. This
means that your mortgage payment can not be any higher than 31% of your Gross
Monthly Income and your mortgage payment plus all revolving or installment debt
(credit cards, car loans, etc.) can not exceed 41% of your Gross Monthly Income.
This “stretch” in ratios, allows for the applicant to afford a little
more home and with a little more debt. The
FHA is more lenient on credit. Some
1st time homebuyer programs have income restrictions, but the FHA has no
income limit. The FHA does have a
maximum loan amount, this will vary from county to county (visit our web
site for your county maximum). FHA
allows customers to finance a 1 to 4 unit home as long as the dwelling will be a
primary home.
Down
Payment
is 3.5%. The seller can contribute
up to 6% toward the closing costs. A
GIFT from a family member may be used to pay for the entire down payment and
closing costs.
MORTGAGE
INSURANCE PREMIUM (MIP) is financed on top of the base loan amount.
FHA loans require an applicant to pay a Mortgage Insurance Premium (MIP).
This premium ranges between 1.25 and 2.25% and is based on credit and
LTV. This premium is added to the
base mortgage amount and may be financed on top of the maximum mortgage amount.
In addition, there is a monthly MIP
cost. This is 0.50%-.55% of the mortgage
amount prior to financing the MIP and is included in your mortgage payment.
CREDIT:
A period of financial difficulty in the past does not necessarily make
the risk unacceptable if a good payment history has been maintained since.
Minor derogatory credit occurring two or more years in the past usually
does not require an explanation. Neither
the lack of credit history nor the borrower’s decision not to use credit may
be used to reflect a FHA loan. You
may develop a credit history from utility payments, rental payments and
automobile insurance payments. The
hierarchy of credit evaluation is the manner of payments made on previous
housing expenses, including utilities, followed by the payment history or
installment debts, then revolving accounts.
Generally, an individual with NO late housing or installment debt payment
should be considered as having an acceptable credit history unless there is
major derogatory credit on the revolving accounts.
Bankruptcies will not disqualify the borrower if at least TWO
years (not four as with Conventional loans) have passed since the discharge AND
the borrower has re-established good credit (or has chosen not to incur new
credit obligations). A bankruptcy of
less than two years (not less than 12 months) may be acceptable if the
bankruptcy was caused by extenuating circumstances.
Dan
Palumbo, FHA specialist and Licensed Mortgage Banker
1-800-817-8743
Equal Housing
Licensed Correspondent Mortgage