FHA Underwriting Guidelines for NC

We talk to people everyday who have questions about qualifying for a FHA Mortgage Loan in NC.  FHA Underwriting Guidelines, are actually pretty straightforward. 

Unlike qualifying for a VA Mortgage loan (where you must be a qualifying Veteran) or a USDA Home Loan (that requires that you meet income limits for your county and the property must fit within the USDA RD Loan Footprint) – FHA has far fewer restrictions!  They do have Maximum Loan Amounts, which vary per county – but other than that, just about anyone who wants to purchase an Owner Occupied Home can do so!

• Maximum Loan Amounts:  Maximum FHA Loan Limits Vary per County, and are subject to change each October.  Congress has said that they will be  lowering the High Cost Area FHA loans that are currently available in areas like Washington, DC and San Francisco in October of 2011. It looks like the maximum FHA Loan Limit for Homes in Raleigh will change at that time too. The 2010 FHA Maximum Loan limit for Wake County is $295,000 – the 2011 limit could go down to $271,050.

• FHA Qualifying Income Requirements:  FHA is flexible with income used to qualify buyers.  They will work with people who are in the IT field, and are on contracts, they will count part time income, and Child support and Alimony Payments.  For the most part it’s also important to remember that when starting a new job, you will probably need to receive your first full paycheck before you can close on your new home.

• Ratios for FHA Loans:  In General, FHA Underwriters take your Gross Income (Before taxes come out), and divide that by 12.  Then they multiply that number by 28% to find your maximum monthly housing payment can be.  (We’ve seen people who did not have a tremendous amount of debt qualify for more than this number, that’s why we have you talk to a Lender!)  They take the Gross Monthly Income and multiply it by 41% to find out what your TOTAL monthly obligations can be (meaning house payment, insurance, taxes, car, credit cards – etc). Although we know it’s a big expense for many families – FHA does not count Child Care in your qualifying ratios (and they don’t count cell bills, or insurance either!)

• FHA Credit Score Requirements:  For the most part, FHA Underwriters will require a middle credit score of 620, and they want to see 3 open trade lines on your credit report, that have been there for at least 12 months.  Medical Collections that are only a couple of hundred dollars  do not generally need to be paid – however, if you have thousands and thousands of dollars of collections outstanding, even if they are medical related, they will probably require that they be paid off.  If you have outstanding Student Loans, you will need to make payment arrangements, and the underwriter will likely require that you make a few of them on time before loan approval.  If you’ve been hurt by the recent economic turn down and have a bankruptcy, foreclosure or short sale in your history – FHA will still do a loan for you!  If you meet NC Housing Finance Agency Guidelines, in some cases we can make a loan with minimum credit scores between 600 and 620.

• FHA DownPayment Requirements:  If you are purchasing a “regular” house (not a distressed home), FHA requires a 3.5% downpayment.  The down payment can be a gift, it can be from the sale of an asset (we had one borrower sell a bass boat so he could buy a house), savings and… if you qualify for NC Housing Finance Agency money- up to $8000 of this can be given to you by the Government (with a few strings attached of course).

• FHA 203K Loans:  FHA has a program for home renovation.  If you purchase a home for $100,000 (for instance) and you want to put in new appliances and carpet, you can do it with this program!  Let’s say the TOTAL amount of repairs you wanted to make to the house is $15000.  As long as the property will appraise for at least $115,000, you would make a down payment based on that “fixed up” value of $115,000.  So 3.5% of $115,000 is $4025!  Sweet!  The maximum amount they will loan for renovation under this Streamline program is $35,000.  The process of working with a contractor is a little complicated – but we can walk you through it!

• HUD Homes with $100 Down Payments: If you are purchasing a HUD foreclosed Home, and we write it in the contract – HUD will allow you to get an FHA mortgage on that property with a $100 down payment.  HUD will also contribute to your closing costs.  The buyer must be an owner occupant to qualify, and they must offer full price.  You must be willing to live in the property for a year.  You can not combine this program with a FHA 203K.

• FHA Good Neighbor Next Door:  If you are purchasing a HUD Home in a qualifying “Revitalization” area, HUD allows Teachers, Firemen, Police Officers, and qualifying EMT’s to purchase the home at 50% of the asking price.  They must be willing to Owner Occupy the home for 3 years – and you can not own residential real estate for 12 months prior to the offer.

• FHA PMI Charges:  FHA Charges a 1% upfront mortgage premium on all loans, in addition to collecting PMI (mortgage insurance premiums) each month.  Depending on your tax situation, these premiums could be tax deductible – and they serve to insure the lender, and FHA against defaults and foreclosures.

• FHA Appraisal Requirements: With a HUD Foreclosed Home, there’s already an appraisal that has been done – If the appraisal is more than 6 months old, we can request a new one, and that’s what you would likely use to make an offer from.  ALL FHA appraisals are done by an FHA Approved Appraiser.  While they do not have the strict property guidelines that USDA Home Loans do, the house still needs to be in fairly good condition, the heat has to work, no broken windows, or torn up floors.  FHA is highly concerned about lead paint.  If a shed, that is not attached to the home (for instance) looks like it has not been painted in 20 years – they could require that it be painted.

• FHA and Condos: FHA’s made some pretty significant changes to it’s Condo Approval process.  Now, all Condo projects must be RE-Approved every 2 years.  Additionally, 50% must be owner occupied or sold to owners who intend to reside in the unit. Also, at least half (50%) of all units must be sold before FHA will issue a mortgage on one.  Here’s a list of condominium projects in Raleigh that are already FHA approved.

If you have questions about purchasing a home in NC using a FHA Mortgage Loan, please call  Steve Thorne at 919-649-5058.  We do many FHA loans, we offer today’s lowest mortgage interest rates, and we can help!