What are FHA Loans?
If your credit is less than perfect, an FHA loan may be right for you. FHA loans may require as little as 3.5% of the purchase price as a down payment. You can get approved with a lower credit score than other types of loans, making it easier to qualify.
Interest rates for FHA loans are low, but closing costs are typically higher than other loan types. Closing costs include an up-front mortgage insurance premium of 1.75% of the loan amount, and that’s in addition to the monthly PMI payment. (That up-front premium is the one closing cost that can be rolled into the loan amount; other closing costs must be paid out of pocket.)
FHA loans ALWAYS have PMI. If your equity has increased enough that you don’t think you need to pay PMI anymore, you would need to refinance into another type of loan such as a conventional loan.
These loans are available because they are backed by the government. The government wants you to own a home–it’s good for our nation and economy. But there are certain rules that apply.
An important rule is that the property must be in good condition, for safety reasons. Properties that need more repairs may not qualify, so that is a problem if you want to buy a property that you could fix up.
And FHA loans can only be used for a primary residence, not an investment property. But you can use an FHA loan to buy a duplex, triplex or 4-plex, as long as you live there for at least one year. (And you can put down as little as 5% for one of these small multi-units.)
Tip: You’ll need a credit score of at least 580 to qualify for 3.5% down. You can still qualify with a minimum credit score of 500 (in addition to other factors), but you’ll need to put down 10% in cash at closing.
In some states and counties, first-time homebuyers with low to moderate income can qualify for grants. Please ask us to help you find grants for which you might qualify.
FHA Loan Benefits
FHA insured mortgages are some of the best kinds of mortgages available. This is because they can help more people into the home buying market. Check out the list below to understand some of the most basic benefits of an FHA mortgage.
Easier to Qualify for – because they’re backed by the federal government lenders are more likely to give you the kind of loan that you need.
Low Down Payment – FHA insured mortgages only require a 3.5% down-payment which makes it easier for people to own homes. Additionally the 3.5% can come in the form of gifts, unlike many other loan programs.
Lower Credit Borrowers Qualify – because FHA insured loans are backed by the government those with a poor credit history have an easier time getting this kind of loan.
Better Interest Rates – with the backing of the government these loans typically have a better interest rate than most traditional mortgage loans.
Better Home Stability – the FHA has programs designed to help homeowners keep their homes during hard times. The will work with you to help your home from falling into foreclosure. Always try to work out problems with your lender before the situation becomes dire.
FHA Loan Checklist
When you're applying for an FHA loan the following list of documents will help expedite the process. We can help you understand any part of the FHA loan process so don't hesitate to contact us with any questions.
- Past two years completed tax returns.
- Past two years W-2's, 1099's and any other necessary tax forms.
- One month worth of newest pay stubs.
- Self-employed will need three years tax returns and YTD Profit & Loss Statement.
- Past three months full bank statements for all accounts.
- Any recent statements from investment accounts (retirement, 410k, mutual funds, etc.).
- Driver's License or other official State identification.
- Social Security Card.
- Any Divorce, Palimony, Alimony Documents.
- Green card or work-permit (if applicable).
FHA Loan Common Questions
Check out our list of common questions related to FHA mortgages. Check out our list of common questions related to FHA mortgages.
What is the FHA?
- FHA stands for the Federal Housing Administration. It was created in 1934 to help Americans get into homes.
What makes a FHA insured mortgage beneficial?
- A FHA insured mortgage is easy to qualify for, can be obtained with less than perfect credit, costs less and requires a smaller down-payment.
Where can I find FHA forms and other literature?
- A great source for FHA forms and information is https://www.hud.gov/topics/buying_a_home.
What is the FHA loan limit in my area?
- The loan limit across the country is different. Click here to see limits in your area.
Can I pay an FHA loan off early?
- Yes, however be sure to check the pre-payment section of your contract before signing.
Can a FHA insured loan help me lower energy costs?
- Yes, through the Energy Efficient Mortgages Program you can finance 100 percent of the cost of making your home more energy efficient. Contact us to see how.
Is there a FHA program to help me refinance my loan?
- Yes, the recently created FHASecure is one of the ways that we can help you refinance your current home loan. Contact us now to see what we can do for you.
Can I refinance a fixed rate FHA loan?
- Yes. Talk with one of our professionals today to see if refinancing makes sense for you.
What is the recommended debt-to-income ratio for FHA loans?
- The recommended debt-to-income ratio for a FHA loan is 30%.
Are FHA loans assumable?
- Absolutely, you can assume an existing FHA loan or allow a buyer to assume yours.
Will I have to pay mortgage insurance with an FHA loan?
- Yes, in fact FHA mortgages often require you to carry mortgage insurance for longer than most conventional loans.
Can I get a "fixer-upper" of a home with a FHA mortgage?
- Yes, however you might be required to fix certain problems in the home before you can get the full loan. Speak with us today for details on this.
In order to qualify for an FHA loan, a borrower typically needs to meet this criteria:
- Proven employment status of at least 2 years.
- Steady or increasing income over a 2 year period.
- History of on-time payment. No more than two missed payments on your credit.
- If you've filed for bankruptcy you must wait at least 2 years and have good credit since you filed.
- Those with foreclosures must wait at least 3 years since the most recent foreclosure.
- Monthly mortgage payment should be roughly 30% of your gross income.
- You must pay a minimum of a 3.5% down-payment.
- Agree to 2.25% in closing costs
- Only certain properties are eligible - single-family homes, condominiums, double-wide manufactured homes, modular homes and 2-4 unit properties.
- The property must be your primary residence.
FHA Streamline Refinance
What Is An FHA Streamline Refinance?
If you already have an FHA mortgage then you might qualify for a FHA Streamline Refinance. An FHA Streamline Refinance is a great way for a borrower with an existing FHA backed mortgage to reduce their interest rate, reduce their payment or possibly both.
Here are some really cool facts about an FHA Streamline Refinance:
- No Appraisal is Required – because your loan is already guaranteed by your existing FHA loan, the FHA will allow you to use your home’s original purchase price as your home’s current value.
- You can still refinance even if you are underwater – even if you owe more than your home is worth, you might still be able to get an FHA Streamline Refinance loan.
- There is no FHA prepayment penalty to worry about.
- FHA Streamline refinance rates are the same as “regular” FHA loan rates.
- Employment verification is not required with an FHA Streamline Refinance – in other words, no paystubs, no W-2s or tax returns are required for approval.
- Income verification is not required with an FHA Streamline Refinance
- Credit score verification is not required with an FHA Streamline Refinance – instead of checking your credit, your payment history is used to determine fi you qualify or not. You must have no late payments in the last 90 days and only one or less late payment within the last 12 months.
The Refinance Must Have A "Purpose"
Streamline Refinance applicants must demonstrate that there's a Net Tangible Benefit in the refinance or in other words a legitimate reason for refinancing. For Example:
- Refinancing from an Adjustable Rate Mortgage to a Fixed Rate Loan.
- or Reducing your principal + interest + mortgage insurance 5 percent or more.
Your Loan Balance May Not Increase To Cover The New Loan Costs
The FHA prohibits increasing a Streamline Refinance's loan balance to cover associated loan charges. The new loan balance may increase but only by the cost of the Upfront Mortgage Insurance Premium. All other costs -- origination charges, title charges, escrow -- must either be paid by the borrower as cash at closing, or credited by the loan officer in full.
These materials are not from HUD or FHA and were not approved by HUD or a government agency and in some cases a refinance loan might result in higher finance charges over the life of the loan.