FHA home loans are mortgage loans that are insured against default by the Federal Housing Administration (FHA). FHA loans are available for single family and multifamily homes. These home loans allow banks to continuously issue loans without much risk or capital requirements. The FHA doesn’t issue loans or set interest rates, it just guarantees against default.

FHA loans allow individuals who may not qualify for a conventional mortgage obtain a loan, especially first time home buyers. These loans offer low minimum down payments, reasonable credit expectations, and flexible income requirements.

What Is An FHA Loan?

In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home.

FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.

– Buy a house with as little as 3.5% down.
– Ideal for the first-time homebuyers unable to make larger down payments.
– The right mortgage solution for those who may not qualify for a conventional loan.
– Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.

Documents Needed For FHA Loans

Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate information on:

Employment

– Complete Income Tax Returns for past 2-years
– W-2 & 1099 Statements for past 2-years
– Pay-Check Stubs for past 2-months
– Self-Employed Income Tax Returns and YTD Profit & Loss Statements for past 3-years for self-employed borrowers

Savings

– Complete bank statements for all accounts for past 3-months
– Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.

Credit

– Recent bills & statements indicating account numbers and minimum payments
Landlord’s name, address, telephone number, or 12- months cancelled rent checks
– Recent utility bills to supplement thin credit
– Bankruptcy & Discharge Papers if applicable
– 12-months cancelled checks written by someone you co-signed for to get a mortgage, car, or credit card, this indicates that you are not the one making the payments.

Personal

– Drivers License
– Social Security Card
– Any Divorce, Palimony or Alimony or Child Support papers
– Green Card or Work Permit if applicable
– Any homeownership papers

Refinancing or Own Rental Property

– Note & Deed from any Current Loan
– Property Tax Bill
– Hazard Homeowners Insurance Policy
– A Payment Coupon for Current Mortgage
– Rental Agreements for a Multi-Unit Property

FHA Versus Conventional Loans

The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.

What Can I Afford?

Your monthly costs should not exceed 29% of your gross monthly income for a FHA Loan. Total housing costs often lumped together are referred to as PITI.

P = Principal

I = Interest

T = Taxes

I = Insurance

Examples:

Monthly Income x .29 = Maximum PITI
$3,000 x .29 = $870 Maximum PITI

Your total monthly costs, or debt to income (DTI) adding PITI and long-term debt like car loans or credit cards, should not exceed 41% of your gross monthly income.

Monthly Income x .41 = Maximum Total Monthly Costs
$3,000 x .41 = $1230
$1,230 total – $870 PITI = $360 Allowed for Monthly Long Term Debt

FHA Loan ratios are more lenient than a typical conventional loan.

Bankruptcy and FHA Loans

Yes, generally a bankruptcy won’t preclude a borrower from obtaining a FHA Loan. Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn’t be paid.

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The VA Loan provides veterans with a federally guaranteed home loan which requires no down payment. This program was designed to provide housing and assistance for veterans and their families.

The Veterans Administration provides insurance to lenders in the case that you default on a loan. Because the mortgage is guaranteed, lenders will offer a lower interest rate and terms than a conventional home loan. VA home loans are available in all 50 states. A VA loan may also have reduced closing costs and no prepayment penalties.

Additionally there are services that may be offered to veterans in danger of defaulting on their loans. VA home loans are available to military personal that have either served 181 days during peacetime, 90 days during war, or a spouse of serviceman either killed or missing in action.

What Is A VA Loan?

The Veteran Administration’s Loan originated in 1944 through the Servicemen’s Readjustment Act; also know as the GI Bill. It was signed into law by President Franklin D. Roosevelt and was designed to provide Veterans with a federally-guaranteed home loan with no down payment. VA loans are made by private lenders like banks, savings & loans, and mortgage companies to eligible Veterans for homes to live in. The lender is protected against loss if the loan defaults. Depending on the program option, the loan may or may not default.

Who Is Eligible For A VA Loan

Wartime/Conflict Veterans

– Veterans who were NOT Dishonorably Discharged, and served at least 90 days
– World War II – September 16, 1940 to July 25, 1947
– Korean Conflict – June 27, 1950 to January 31, 1955
– Vietnam Era – August 5, 1964 to May 7, 1975
– Persian Gulf War – Check with the Veterans Administration Office
– Afghanistan & Iraq – Check with the Veterans Administration Office
– Veterans Administration website www.va.gov

Peacetime Service

At least 181 days of continuous active duty with no dishonorable discharge. If you were discharged earlier due to a service-related disability you should contact your Regional VA Office for eligibility verification.

– July 26, 1947 to June 26, 1950
– February 1, 1955 to August 4, 1964, or May 8, 1975 to September 7, 1980 (Enlisted), or to October 16, 1981 (Officer)
– Enlisted Veterans whose service began after September 7, 1980, or officers who service began after October 16, 1981, must have completed 24-months of continuous active duty and been honorably discharged

Reserves and National Guard

– Certain U.S. Citizens who served in the Armed Forces of a government allied with the United States during World War II.
– Surviving spouse of an eligible Veteran who died resulting from service, and has not remarried.
– The spouse of an Armed Forces member who served Active Duty, and was listed as a POW or MIA for more than 90-days.

What Type Of Home Can I Buy With A VA Loan

A VA home loan must be used to finance your personal residence within the United States and its territories. You have choices for the type of home you purchase:

– Existing Single-Family Home
– Townhouse or Condominium in a VA-Approved Project
– New Construction Residence
– Manufactured Home or Lot
– Home Refinances and Certain Types of Home Improvements

What Are The Benefits Of A VA Loan

– 100% Financing & No Down Payment Loans
– No Private Mortgage (PMI)
– No Penalties for Prepaying the Loan
– Competitive Interest Rates
– Qualification is Easier than a Conventional Loan
– Sellers Pay Some of the Closing Costs
– Can be combined with additional down payment assistance to reduce closing costs

How Do I Apply For A VA Guaranteed Loan

You can apply for a VA Loan with any mortgage lender that participates in the program. In addition to the application requirements from your lender, you will need the following at application time:

• Certificate of Eligibility from the Veterans Administration by submitting a completed VA Form 26-1880.
• Proof of Military Service from a VA Eligibility Center

If I have Already Obtained One VA Loan, Can I Get Another One?

Yes, your eligibility is reusable depending on the circumstance. If you have paid-off your prior VA Loan, and disposed the property, you can have your eligibility restored again. Also, on a 1-time basis, you may have your eligibility restored if your prior VA Loan has been paid-off, but you still own the property. Either way, the Veteran must send the Veterans Administration a completed VA Form 16-1880 to the VA Eligibility Center. To prevent delays in processing, it’s advisable to include evidence that the prior loan has been fully paid, and if applicable, the property was disposed. A paid-in-full statement from the former lender or a copy of the HUD-1 settlement statement must be submitted.

What Are The Disadvantages Of A VA Loan

– VA Loans made prior to March 1, 1988 can be assumed with no qualifying of the new buyer. If the buyer defaults the property the Veteran homeowner may be liable for the funds.
– Some sellers are hesitant to work with someone obtaining a VA Loan because it takes longer than a conventional loan to process.
– Sellers are often asked to pay a portion of closing costs and therefore less likely to negotiate the sales price of the home.

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USDA is a program designed to improve the economy and the quality of life in rural America. It offers low-interest rates and no down payments, and you may be surprised to find just how accessible this loan program has become. Contact your loan officers to find out if the property you are interested in purchasing is located in a USDA-approved area, and you may qualify for this low rate, low mortgage insurance, and no down payment loan program.

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A reverse mortgage is a type of home equity loan that allows you to convert some of the existing equity in your home into cash while you retain ownership of the property. Equity is the current cash value of a home minus the current loan balance.

A reverse mortgage works much like a traditional mortgage, except in reverse. Instead of the homeowner paying the lender each month, the lender pays the homeowner. As long as the homeowner continues to live in the home, no repayment of principal, interest, or servicing fees are required. The funds received from a reverse mortgage may be used for anything, including housing expenses, taxes, insurance, fuel or maintenance costs.

To qualify for a reverse mortgage, you must own your home. You may choose to receive the reverse mortgage funds in a lump sum, monthly advances, as a line-of-credit, or a combination of the three, depending on the reverse mortgage type and the lender. The amount of money you are eligible to borrow depends on your age, the amount of equity in your home, and the interest rate set by the lender.

Because the borrower retains ownership of the home with a reverse mortgage, the borrower also continues to be responsible for taxes, repairs and maintenance.

Depending on the plan selected, a reverse mortgage is due with interest either when the homeowner permanently moves, sells the home, dies, or the end of a pre-selected loan term is reached. If the homeowner dies, the lender does not take ownership of the home. Instead, the heirs must pay off the loan, typically by refinancing the loan into a forward mortgage (if the heirs meet eligibility requirements) or by using the proceeds generated by the sale of the home.

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There are many benefits to One-Time Close Construction-to-Permanent loans; for example, the interest rate and payment can be locked in prior to the start of construction. Plus, with only one closing, it saves time and money. Also, a One-Time Close loan means eligible borrowers won’t need to secure a permanent mortgage once the home is complete because that will already be included in the single closing! This is an excellent option for borrowers who want to build their dream home.

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