What are FHA loans?
FHA loans are issued by federally qualified lenders and insured by the Federal Housing Administration, a division of the U.S. Department of Housing and Urban Development also known as HUD. We are one of FHA lenders classified as a “Full Eagle” lender. FHA loans are an attractive option, especially for first-time homeowners due to:
- Generally easier to qualify than conventional loans;
- Lower down payment requirements, 3.5% compared to 5% for conventional loans;
- Lower credit score requirement;
- Loan limits specific to the county.
The Federal Housing Administration, generally known as “FHA”, provides mortgage insurance on loans originated by approved lenders. FHA insures the mortgage of single family and one-to-four family dwellings, multifamily homes including manufactured homes. It is the largest insurer of mortgages in the world, insuring over 34 million properties since its inception in 1934. Unlike conventional loans that adhere to strict down payment guidelines, FHA-insured loans require very little cash investment to close a loan. The minimum down payment requirement to get an FHA loan is 3.5% of the Sales Price. There is also more flexibility in calculating household income and payment ratios. A borrower can have a debt-to-income ratio as high as 55% and still qualify, 57% in some instances with compensating factors.
FHA and First Time Home Buyers
Although first time home buyers generally use the FHA 203(b) loan to get financing, anybody can qualify for an FHA loan. The FHA home loan program is not limited to first time home buyers only. As a matter of fact, it is the widely used residential loan program in the US.
FHA loans are easier to qualify for as compared to the conventional mortgage loan counterpart. Not only debt-to-income calculation is more lenient, cash reserves are also flexible for FHA loans. There are a lot of misconception by the general public about FHA loans. Typically, it is construed as an option only for First Time Home Buyers. This is not true at all because anybody can get an FHA insured loan as long as they meet the credit, income and asset requirement set forth by HUD in order to qualify for an FHA loan. Borrowers who had an FHA loan before can get another FHA loan again. It is not limited to a one-time use. The cost of the mortgage insurance is passed along to the homeowner and typically is included in the monthly payment. All FHA lenders have to follow this strict guideline.
The Mortgage Insurance Premium or MIP on FHA imposed on an FHA loan is for the life of the loan itself. It cannot be canceled down the road. The only way to cancel a MIP for an FHA loan is to refinance and convert it from FHA to Conventional, and have a loan-to-value (LTV) under 80%. There are mortgage loan limits that are county specific that lenders must follow as mentioned above. FHA loans allow for both Purchase and Refinance transactions. There are also FHA Streamline refinance available to those who already have an existing FHA loan and wish to refinance to another FHA insured mortgage to lower their current rate.
For more information about FHA loans, their features and benefits and how it may apply to you, please contact our FHA Loan Specialists at (866) 772-3802 or use any of the tools on this website.