What is an FHA Loan?
An FHA loan is a mortgage backed by the US Government’s Federal Housing Administration or FHA. It is useful for first-time home buyers who may have lower credit scores or other issues which will eliminate them from consideration by conventional lenders. They also have lower down payment requirements than conventional loans, another advantage to first-time buyers.
Although a mortgage is secured by the FHA, it is processed through mortgage brokers approved by the FHA. They are normally offered in 15-year and 30-year mortgages with fixed rates. One requirement is the need for the borrower to pay FHA mortgage insurance. This protects the mortgage lender from any future default by the borrower. Mortgage insurance is common when borrowers offer less than 20% down payments.
There are two mortgage insurance premiums required with FHA loans:
The first premium is 1.75% of the loan value paid at closing, which can be rolled into the financed amount of the mortgage.
An annual mortgage insurance premium varying from 0.45 to 1.05 percent depending on the term of the loan, the amount of the loan, and the loan-to-value ratio (LTV). This is divided into monthly payments.
There are several conditions for getting an FHA loan approval:
The loan must be for a principal residence
The borrower must have verified employment for the past two years
Income must be verifiable with pay stubs, bank statements, and federal tax returns
Minimum FICO scores depending on the amount of down payment
Appraisal by an FHA-approved appraiser and the property meets HUD guidelines
Monthly mortgage payments cannot exceed 31% of gross pay with some exceptions
Total monthly debt limits cannot exceed 43% of gross pay with some exceptions
There are waiting periods after a bankruptcy or foreclosure before you are eligible for FHA financing
The DPA Team at Sterling Realty in Sarasota is ready to help first-time home buyers secure the financing they need to own their home. We have a variety of services available to help those who are struggling to get the financing they need. Contact us today for more information at 941-315-5300.