FHA FAQ and FHA MADE EASY FORMS

Is FHA financing complicated?

FHA home loans are easier than conventional financing.

Who qualifies for a FHA home loan?

The program is open to virtually everyone. There are a few restrictions placed upon credit and residency that may preclude someone from obtaining a FHA home loan.

Is it true that the down payment can be gifted?

Yes. Current FHA guidelines permit a relative, a governmental agency, or approved non-profit organization to gift the borrower's down payment. A gift, according to HUD, is just that--a gift. HUD does not permit the borrower to repay the gift as a stipulation of giving the gift.

What is the minimum amount of money I need to buy a home with a FHA mortgage?

The Federal Housing Act requires the minimum cash investment to be 3 percent of the sales price. Even though the actual down payment may be less than 3 percent, the balance would go towards the borrower's closing costs. In the event that there are no closing costs, the down payment would be increased to 3 percent.

I am in a Chapter 13 bankruptcy. Can I get a FHA loan?

A Chapter 13 bankruptcy does not automatically prohibit a borrower from obtaining a FHA loan. Ideally, a minimum of 12 months of repayment with a Chapter 13 (the borrower must also seek permission of the courts to allow this). If a borrower has suffered through extenuating circumstances (such as surviving cancer but had to declare bankruptcy because the medical bills), special exceptions can sometimes be made.

What is the FHA (Federal Housing Administration)?

The Federal Housing Administration, generally known as "FHA", provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. FHA insures mortgages on single family and multifamily homes including manufactured homes and hospitals. It is the largest insurer of mortgages in the world, insuring nearly 33 million properties since its inception in 1934.

What is FHA Mortgage Insurance?

FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance.

Why does FHA Mortgage Insurance exist?

Unlike conventional loans that adhere to strict underwriting guidelines, FHA-insured loans require very little cash investment to close a loan. There is more flexibility in calculating household income and payment ratios. The cost of the mortgage insurance is passed along to the homeowner and typically is included in the monthly payment. In most cases, the insurance cost to the homeowner will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -whichever is longer.

How is FHA funded?

FHA is the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing. The proceeds from the mortgage insurance paid by the homeowners are captured in an account that is used to operate the program entirely. FHA provides a huge economic stimulation to the country in the form of home and community development, which trickles down to local communities in the form of jobs, building suppliers, tax bases, schools, and other forms of revenue.

The History of FHA

Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development's (HUD) Office of Housing in 1965.

When the FHA was created, the housing industry was flat on its back:

• Two million construction workers had lost their jobs.
• Terms were difficult to meet for homebuyers seeking mortgages.
• Mortgage loan terms were limited to 50 percent of the property's market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
• America was primarily a nation of renters. Only four in 10 households owned homes.

During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war.

In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA's emergency financing kept cash-strapped properties afloat.

The FHA moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980s.

By 2001, the nation's homeownership rate had soared to an all time high of 68.1 percent as of the third quarter that year.

The FHA and HUD have insured almost 30 million home mortgages and 38,000 multifamily project mortgages representing 4.1 million apartments, since 1934.

In the more than 60 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world. HUD has helped greatly with that success.

What is the most popular FHA loan program?

The most popular FHA home loan program for a first time home buyer is by far is the 203(b). This is your standard fixed rate loan for 1-4 family owner occupied houses and only requires a minimum of 3% from the borrower. This loan also permits 100% of their money needed to close can be financed in the loan with a Seller’s Concession, a gift from a relative, non-profit organization or government agency.

What are the advantages of an FHA home loan?

The main advantage to a FHA home loan is that the credit criteria for a first time borrower are not as strict as Conventional Loans sold to Fannie Mae (FNMA) or Freddie Mac (FHLMC).

Someone who may have had a few credit problems or no traditional credit should not have a problem obtaining FHA financing.

In addition borrower's allowable costs can be wrapped into the loan.

The monthly mortgage insurance premium is cheaper for an FHA loan verses a conventional loan with 3% down.

FHA loans may require less income to qualify as they will exceed the Conventional debt ratios of 28/36% as their standard is 29/41%.

Are there any disadvantages to FHA loans?

Some contend that the 1.50% FHA upfront mortgage insurance premium (MIP) is a disadvantage. However this amount makes just a very small increase in the borrower's month payment and is partially refundable when the loan is paid off in the first 3 years. FHA does not make home loans. They insure the loans that we can assist you in getting.

Are FHA loans for first time homebuyers only?

Many people make the mistake and assume that FHA loans are only available for first time home buyers. This is not true. FHA loans are available to anyone, whether it is the first or fifth home and can be used to purchase a home or refinance a home. If refinancing a home the current loan DOES NOT have to be an FHA loan.

You can use FHA home loans as many times as you desire when buying a home or doing a mortgage refinance. The only guideline is that you cannot have more than one outstanding FHA mortgage loan with a loan to value of higher than 75%. You can own rental property and purchase your primary residence using FHA mortgage financing.

Are FHA loans only for home purchases?

Many people make the mistake that FHA loans are solely for first time buyers to purchase a home. While this might be one of the more popular transactions, FHA loans are available to anyone for both purchases or refinance transactions. FHA does not have any income restrictions or location restrictions. They do however have maximum mortgage limits that vary by state and county.

There are certain programs that are sponsored by city, county and state government programs that piggyback on top of FHA loan programs that offer below market or subsidized payments that have income or location restrictions.

FHA loan financing is available up to 97.75% of the purchase price for one to four family owner occupied properties.

Borrowers who currently have a FHA loan may choose to refinance using the FHA Streamline Refinance program.

Borrowers who have other types of loans may refinance up to 97% of the appraised value if they are only paying off their existing mortgage or up to 85% of the appraised value if they are paying off debt or taking cash out of the transaction.

Does FHA use a FICO credit score for loan qualifying?

FHA programs that do require a FICO credit score with borrowers who have established mainstream credit. Those who have not established credit that is submitted to the Credit Bureaus and thereby have no scores may have their loans

manually underwritten whereby common sense is used.

Can I buy a home with no down payment and get 100% financing using a FHA loan?

Yes. Using a FHA insured real estate first mortgage in combination with a Grant or Gift from a relative, you are able to buy a home with no money down.

How long after a bankruptcy can I use a FHA loans for buying a home or mortgage refinance?

You may buy a home using FHA loans 24 months after the date of discharge for a bankruptcy, assuming that you have maintained perfect credit since the discharge of the bankruptcy.

How long after a Foreclosure can I use a FHA mortgage loan for buying a home or a refinance mortgage?

FHA loans may be used for buying a home 24 months after the final date of foreclosure assuming that your credit since the foreclosure has been perfect.

What the most common FHA loans?

There are several notable FHA home loan programs available as listed below.

Standard fixed rate (FHA 203b)

Rehab Loan (FHA 203k)

Condominium Loans (FHA 234c)

Can I buy a 4 Unit Home with FHA loan financing?

Yes, you may use a FHA mortgage for buying 1,2,3, or 4 unit home assuming that the FHA mortgage amount does not exceed the maximum FHA loan limits for the County where the property is located.

Can I streamline refinance my FHA loan at any time?

Yes, you can streamline refinance to lower your monthly payments, shorten the term or convert the loan to a fixed rate mortgage.

Pre-qualify:

FHA loans are the easiest real estate mortgage loans.

The FHA guidelines are the most flexible of all mortgage loans that require less than 3% down payment.

These are some of the most basics for a FHA loan:

• 3.0% Down payment is provided by Grant, Gift from relative or won seasoned funds.
• Two years of steady employment, preferably in same line of work.
• Last two years income, preferably the same or increasing.
• Credit report should typically have no late payments in last two years.
• 12 months of perfect rental history with canceled checks or Verification by management co.
• Any bankruptcy must be at least two years old, with good credit re-established.
• Any foreclosure must be at least two years old, with good credit re-established
• Your new mortgage payment should be no more than 29% of your gross income

If your clients fit the above criteria, they probably qualify for a FHA mortgage loan.

Pre-qualifying your client gives you insight into your borrowers financing ability.
Pre-qualifying gives them an estimate of what they are able to afford based upon the information they provided. They now understand how much of a mortgage payment they can afford with regards to their gross monthly income.