What do you need to qualify for a FHA mortgage loan?
The U.S. government continues to guarantee some of the most aggressive FHA home financing for people with a wide range of credit scores. Qualified borrowers need the following to meet the guidelines for a FHA mortgage:
1. It is important that you establish credit. Underwriters are looking for borrowers that can show a pattern of a consumer paying their bills on time.
2. You must be able to demonstrate your ability to make your monthly loan payment by means of employment. FHA does not offer stated income loans.
3. Save your money! Borrowers need to be able to come up with the 3.5% down-payment requirement. For example if you buy a $200,000 house you will need at least $7,000 for the down-payment on a FHA home loan.
While there are many companies that originate home loans insured by the Federal Housing Administration, we are the FHA lender with the experience you need to feel confident as a first time home buyer. We offer government home loans in all 50 states. FHA loan rates just declined to a 60 year low, so stop waiting and talk to one of our FHA approved loan officers today.
With less stringent government loan qualifications than most conventional mortgage products, many people are turning to FHA loan programs. FHA home loans are popular for first time home buyers, because they only have to come up with a 3.5% down payment. However, no matter how many homes you have owned, you may be eligible for a FHA mortgage. How to qualify for a FHA loan is a big question for home owners who have not used these great mortgage products. All borrowers must be able to document their income and employment. Unlike some other home purchase loans, applicants are usually allowed to use gift money for FHA down payment requirements.
FHA Loans Are an Attractive Option for New Home Buyers
If you want to know how to qualify for a FHA loan, start with collecting the documents you need. Borrowers must be able to document their income to qualify for these government insured home mortgages. You have to have been employed for the last two years, and it is best if it was with the same employer. Your income from the last two years must have remained the same or increased. You do have to come up with a 3.5% down payment, but applicants are usually allowed to use gift money for FHA down payment costs. These minimal requirements mean FHA is popular for first time home buyer loans.
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However, though FHA home loans are popular for first time home buyers, they are also popular for those with past bankruptcy or foreclosure. Knowing how to qualify for a FHA loan when you have had one of these can be very empowering. Your bankruptcy had to have occurred at least two years ago; three years for a foreclosure, with perfect credit since the occurrence of either. Since borrowers must be able to document their income for at least the past two years, employment is a must. If someone wants to help you get back on your feet financially, applicants are usually allowed to use gift money for FHA down payment, and you only have to come up with a 3.5% down payment.
The FHA Loan Qualification Crieria is Very Reasonable
The basic of how to qualify for a FHA loan are very simple. Borrowers must be able to document their income, including employment for the past two years with a stable or rising annual income. They have to come up with a 3.5% down payment, but applicants are usually allowed to use gift money for FHA down-payment. For those who have gone through bankruptcy or foreclosure, credit must be perfect since the event. Because of limited down payment and qualification requirements, FHA home loans are popular for first time home buyers.
FHA home loans have been the most popular loan for first time home buyers for nearly 2 decades. There aren’t many life events that match the excitement of acquiring your first home. Making the commitment to meet the responsibilities associated with home ownership is a major turning point toward reaching maturity. For the new homeowner, it can be difficult to know how to begin. There are many options to consider in obtaining the needed funds to pay for the property. During your research, you may find yourself asking Why FHA is the Best Home Loan for First Time Home Buyers. There are many reasons why choosing this route makes the best sense. Not only are you dealing with a trusted government financing program, but it also only requires that the home buyer provide 3.5 percent of the home value upfront.
Deciding upon a first time home buyer loan shouldn’t be done without complete understanding of the details of the mortgage package. Before embarking upon this endeavor, review your current credit habits and monthly obligations. Prior history can greatly impact the ability to secure financing. Taking efforts to resolve any outstanding issues will reflect positively when approaching a mortgage lender about the FHA first time home buyer loan. For individuals that may have difficult in arranging enough for a down payment, the FHA has additional programs that can provide assistance if the qualifications are met.
Homeownership Transition Easier with FHA Home Loans
Transitioning from a monthly rental payment toward the responsibility associated with a mortgage can signify a major change toward personal finances. 1st time home buying requires that the individual take personal steps to meet this obligation. Unlike a late rent payment on an apartment, late mortgage payments can significantly damage credit ratings. It can also place you at greater risk of foreclosure. With the housing market in crisis, this is not something that should be risked. Make the commitment to resolve potential problems before making any effort toward moving into a permanent residence.
FHA Home Financing is Commitment with Financial Benefits
If undertaking the purchase of a home will require a lot of effort in arranging financial affairs, it is helpful to understand that HUD only requires a 3.5% down-payment on FHA loans. This means only saved funds can be used to pay off other debts in an effort to improve credit ratings. These available funds can also be used to provide resources for other needs when moving into a new home. This can ease the overall process and make it a more enjoyable experience. With the added security of obtaining the FHA home loan, a person can look toward the future and enhance their first home ownership encounter.
The government approved ameasue to increase FHA insurance premiums for FHA home loans. While this could appear to be a responsible move to bolster FHA lending, it will no doubt prolong the housing crisis, because borrowers will be less likely to buy home if their monthly mortgage payments rise. To a first time home buyer, raising the mortgage insurance premiums is no different than raising the interest rates because either way, their monthly payment rises.
The U.S. House of Representatives on Thursday approved a bill to shore up the finances of the cash-strapped Federal Housing Administration while also backing a measure to raise the loan limits for FHA-backed mortgages used to develop some apartment buildings. In a 406-4 vote, lawmakers approved legislation to strengthen the finances that back the FHA loan programs by giving it authority to nearly triple the annual fees it charges to borrowers, known as mortgage insurance premiums.
In related news, lawmakers did strike down a proposed amendment to require borrowers who buy a home with a FHA loan to put more money down. Minimum down-payments will remain still 3.5%, but lawmakers pushed a new plan that would require FHA to examine down-payment requirements every year and submit a report to Congress. New Jersey Republican Representative Scott Garrett introduced a new proposal to increase the down-payment minimums to 5%. This provision had not been expected to pass but did force members of the committee to vote against tightening FHA guidelines. This could pose a political problem for the members who voted against raising FHA lending standards at a time when the mortgage industry is under scrutiny to improve its credibility nationally. The FHA is required to maintain at least 2.0% in capital reserves, but FHA reserves equal to just 0.53% of the value of the thousands of outstanding FHA home loans that they insure.
The new bill gives the FHA authority to increase annual FHA mortgage insurance premiums that are paid out by the borrower over the term of the home loan to a maximum 1.5%. That’s up from the current 0.55% maximum, though the FHA says that if the measure becomes law it would gradually raise the premium–first to 0.85% or 0.9%. To become law, the measure still faces approval by the Senate before President Barack Obama could sign it into law. A Senate version has not yet been introduced. If the FHA is granted authority to raise the annual premium, FHA has said it would lower a separate upfront premium from the current 2.25% to offset those costs. The upfront premium is paid all at once at the time the loan is issued. HUD has made a concerted effort to tighten FHA home loan programs and it appears they will continue to make changes until the FHA loan default problem goes away.
Representatives Anthony Weiner, a Democrat from high-priced New York and Republican Gary Miller from high-priced Southern California, sponsored the amendment, approved by voice vote, to increase the loan limits for buildings to be developed into rental apartments.
FHA Commissioner David Stevens has repeatedly expressed confidence that the agency’s Capital Reserve Account would return to levels above 2% as recent changes to FHA underwriting standards would bring an additional $5.8 billion to FHA coffers. Since over 75% of the FHA loan business comes from first-time home buyers most of the down payments are made at the 3.5% minimum. The government has made FHA the center focus in their efforts to help the housing sectors rebound. Since the 2006 mortgage crisis, FHA has increased their mortgage market-share over 30% of for home financing but the FHA reserves have dropped to dangerously low levels. .
FHA home loans have been an icon for first time home buying since 1934. This government home financing initiative has been bolstering homeownership for decades with low FHA mortgage rates and fair lending criteria for all Americans. The Wall Street Journal reported that the Federal Housing Administration is in serious talks with HUD to raise the insurance premium in an effort to raise the dwindling FHA loan reserves. After FHA loan defaults have dropped for three straight months for FHA mortgage loans. If that trend holds, the agency could avoid burning through the FHA reserves, which are estimated to fall sharply over the coming years. Still, the FHA’s commissioner, David Stevens, says “there’s plenty of room for caution.” Clearly, FHA mortgage financing has not recovered enough to not be concerned about it’s future.
Are FHA Loan Programs at Risk?
As the economy continues to weaken, FHA will likely see more FHA defaults that could drain the FHA reserves even more. I would expect FHA loan requirements to continue the trend of tightening. This will limit the number of eligible borrowers to qualify for a FHA refinance that would lower their monthly mortgage payment and prevent home foreclosures for thousands of distressed homeowners.
Most industry insiders are forecasting additional losses because it has a much bigger exposure to housing today than it did when the housing market tanked three years ago. Even if the HUD continues to amend FHA loan guidelines to stem the FHA defaults, it is likely that the annual audit will uncover the fact that that the Federal Housing Administration continues to operate on low reserves. Let’s face it, if this great loan program was managed by the private sector the FHA loan program would be shut down. One bright spot is that the FHA’s finances are performing better than anticipated. In the last six months, FHA reserves have covered $6 billion that came from the loan defaults, but they had forecasted to pay $8.7 billion for loan defaults. Should we cheer because the FHA loan program is preforming better than anticipated or be critical of a federal loan program that is failing in a failing economy?
A frequent question from loan officers and mortgage brokers is in regards to the longevity of the FHA mortgage product. I received an email just yesterday from a FHA lender asking me the following, “Do you believe that HUD will pull the FHA loan programs for borrowers looking to refinance their home?” Since the subprime crash of 2006, there are still thousands of FHA mortgage brokers who rely heavily on FHA home refinancing. I wanted to address this in this article, because I believe that FHA lending is in jeopardy. FHA loan defaults have been climbing like the rest of the mortgage industry. FHA is a government home loan program and our government is in serious debt. The US government owns nearly 97% of all mortgage securities, so if the homes continue to be foreclosed upon because borrowers are not making their monthly loan payments, then it is safe to say that yes the future of FHA financing is cloudy at best.
Let’s take a look at the FHA loan programs at risk.
FHA 203B – This FHA loan program enables borrowers to get cash out up to 85%. FHA reduced it 10% from 95% cash out refinancing last year. It will be interesting to see if the 10% reduction helped reduce FHA loan defaults for borrowers who took cash out when they refinanced their home.
FHA Streamline – This legendary refinance loan is only for existing FHA borrowers seeking a rate and term refinance. HUD tightened the FHA guidelines by not allowing borrowers to finance the lender closing costs. FHA streamlines do not allow cash out and this new rule has significantly reduced the number of FHA streamline refinances in 2010. My guess is that the streamline program will survive if FHA survives.
FHA Home Loans – FHA goes hand in hand with first time home buying loans so it’s hard to imagine FHA would eliminate their flagship mortgage product, but if FHA loan defaults continue anything is possible. In 2009 FHA loan reserves dipped to dangerously low levels, so funding the FHA program must continue to pass through Congress. Last year FHA increased the down-payment requirements from 3% to 3.5%. I would anticipate that this will go to 5% sooner rather than later.
To HUD’s credit, FHA loan requirements for FHA lenders have increased dramatically. These changes were made to further solidify lending and weed out the shady or uncommitted lenders. As mentioned earlier HUD also mandated significant changes to FHA guidelines. Down-payment, home equity and cash out requirements were all tightened in 2009 and 2010. It is my contention that the FHA loan product will survive, but I believe we the tightening of guidelines is far from over.
FHA loan reserves have become a growing concern for the government mortgage program. The FHA reserves were finally addressed by the House Financial Services Committee. Government representatives confronted the challenges of balancing the FHA reserves by revising FHA guidelines so that less borrowers default. FHA continues to play a major role in offering FHA home loans to first time homebuyers. Even as FHA rates have recorded record low, the reserves have fallen to approximately .53% of the value of FHA insured home mortgages, well below the legally mandated level of 2%.
FHA reserves are getting dangerously low agian. In an effort to bolster FHA reserves while minimizing the impact on borrowers of FHA home loans, the Committee approved allowing FHA to raise the annual mortgage insurance premium from its current level of .55%. This move is designed to move some of the cost of mortgage insurance from the up-front mortgage insurance premium (UFMIP) paid at closing to the annual portion of the premium, which is pro-rated monthly and added to monthly mortgage payments.
HUD continues to review new proposals to raise the minimum FHA down payment amount from 3.5% to 5% and eliminating seller contributions to buyer closing costs were defeated by the Committee. According to the FHA Loan Pros, “These FHA mortgage proposals may have been well intentioned toward raising FHA reserves, but have endured hardships for the first time and homeowners who depend on FHA loans” for home buying and lowering interest rates with refinance loans. HUD has made it no secret of their plan for FHA to begin increasing the annual mortgage insurance premiums from their current rate of .55% to 1.5%.
Most first time home buyers do not want to come up with a 20% down-payment. FHA continues to provide low down-payment home mortgages that only require a 3.5% down payment. According to 2010 FHA guidelines, first time home buyers and experienced home buyers a like can finance a home up to 97.5% loan to value. If you want to buy a home without coming out of pocket for lender fees, FHA guidelines allow lender paid closing costs. FHA lenders can pay for borrower closing costs but the FHA rates will be slightly higher as the closing costs are factored in. In addition, FHA also allows gift money for FHA home loan transactions. This means that borrowers can utilize money from friends or family as the source of the down-payment.
Currently FHA does not offer a no money down mortgage option. In fact there is not any 100% home loans left in today’s market, with the exception of the VA home loan. Of course this mortgage is only offered to active military and qualified veterans. Besides these military mortgages, FHA offers the closest thing to zero down home financing with a 97.5% home loan.
The FHA Home Loan Company is an FHA approved lenders that offers the full suite of FHA loan programs to borrowers in all 50 states. Choose from FHA refinance, FHA streamline and FHA home purchase loan options.
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