After Conventional homes loans, the FHA Home Loan program continues to be the second most popular home loan program used by consumers to purchase a home or refinance a home loan. The program can be a great fit, for those who are looking for more flexible credit guidelines. Or if you are looking to make a smaller down payment, have less than perfect or higher debt to income ratios, the FHA program can often times be the right choice.
In this article, we will explore some of the many facts, features and benefits of the FHA home loan program.
FHA home loans have some of the most lenient credit standards of all home loan programs. On an FHA loan, there is not a set minimum credit score to obtain a loan, but most lenders do impose a 580 minimum credit score requirement.
As with all loan programs, the higher your credit score is, the lower your interest rate will be, but the FHA home loan program is the most forgiving when it comes to lower credit scores.
To purchase with an FHA home loan there is a 3.5% minimum down payment. Unlike conventional loans, there is always mortgage insurance initially on all FHA loans, but the costs due decrease with a 5% down payment or with a 15 year fixed loan, as opposed to a 30 year fixed mortgage.
In addition, the entire down payment on an FHA loan may be gifted, from a family member, meaning that a home buyer does not need to necessarily pay any of the down payment funds out of pocket.
In addition, on an FHA refinance loan, you can do so with as little as 3.5% in equity in your home or even with no equity, through an FHA streamline refinance
Home Loan Limits:
The current FHA loan limit is $294,515 in Maricopa and Pinal Counties in Arizona. Meaning that this the maximum loan size you can obtain using an FHA loan. If you are looking to purchase a home with the minimum down payment on an FHA loan of 3.5%, that equates to roughly a maximum purchase price of $305,000.
The FHA home loan program can only be used to purchase or refinance a primary home. However, if you currently have an FHA home loan on a property you no longer live in, you still may able to complete an FHA streamline refinance. In addition, you can use the FHA home loan program to purchase any single-family home or townhome or any FHA approved condo.
FHA Home loans have two types mortgage insurance associated with them. Upon the initial purchase of a home there is a 1.75% upfront mortgage insurance fee, which can be paid out of pocket or rolled into your new home loan. In addition, there is also monthly mortgage insurance on an FHA loan, which varies by down payment and is based on an annual percentage. On a 30 year fixed FHA loan, the annual FHA mortgage insurance is .85% with a 3.5% down payment and .80% with a 5% or greater down payment.
Foreclosure, Short Sale or Bankruptcy:
To obtain a new FHA home loan, to purchase a home or refinance an existing home loan, you must wait three years after the completion of a short sale or foreclosure. In addition, there is also a two year waiting period after the discharge of a chapter 7 or 11 bankruptcy to obtain a new home loan.
Debt To Income Ratio:
On an FHA loan, the programs basic guide says that your monthly mortgage payments should not exceed 29% of your monthly income and all of your monthly debts combined (including your mortgage payment) should not exceed 41% of your monthly income. However, with compensating factors, such as a steady job history, assets or good credit, it is not uncommon for higher debt to income ratios to be approved for FHA loans, with the program allow debt ratios all the way up to 56.9% debt to income ratio or higher.
These are some of the basics you need to know about the FHA home loan program, but of course everyone’s individual situation is unique and it is always best to speak with a licensed lender, such as Strategic Mortgage and explore all available options, for your specific situation.
For more information on current home loan programs and options for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: firstname.lastname@example.org or online at www.strategicmtgaz.com
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