The Federal Housing Administration (FHA) requires lenders to follow certain guidelines when issuing mortgages to qualified buyers. In addition to meeting credit standards, applicants must also meet the following criteria:
- Have a good credit history
- Be able to make payments on time
- Provide proof of employment
- Have enough money saved up for a down payment
- Make sure there is sufficient equity in the property
These requirements help protect both borrowers and lenders. If a borrower defaults on his or her mortgage, the government steps in and takes over the loan. This protects lenders against losses caused by defaulted loans. However, it also makes it harder for people to buy homes because they don’t have access to financing.
FHA Loan Down Payments
An FHA loan requires a downpayment of 3.5%, but there are ways around it. If you don’t want to put up the full amount upfront, you can use gift aid to pay off part of the mortgage. And if you’re looking for an FHA loan, consider checking out Rocket Mortgage®, which allows borrowers to make a down payment of just $0. You’ll still need good credit, though, and you’ll have to meet certain income requirements.
FHA Mortgage Insurance
The FHA offers loans insured by the Federal Housing Administration. These are government backed mortgages that require no money down and low interest rates. They are considered safe because the federal government backs the lender against losses up to 110% of the home purchase price. However, there are some downsides to the program.
An upfront mortgage insurance premium is required, which usually ranges between 2% 7.5%.
There is an additional annual mortgage insurance premium, based on the terms of your loan, your loan-to-value ratio, your total mortgage amount and your down payment.
This runs about.4% 1.1% of your base loan amount.
Your monthly payments will vary depending on how big your mortgage is, what type of property it is, and whether or not PMI is taken out.
FHA Loans And Credit Score
The Federal Housing Administration (FIA) offers low-down-payment financing options to qualified applicants. These are known as “conforming” loans because they meet certain requirements set by the government. You must have a credit history and income to qualify for conforming loans.
A good credit score will help ensure you qualify for an FH1 loan. If you don’t have enough cash saved up for a 20% down payment, you might want to look into an FHA loan. This type of loan requires 3.5% down, making it easier to obtain.
If you decide to apply for an FHA loan with a co-borrower, make sure both parties agree to the terms before signing anything. If one party backs out, the entire deal could fall apart.
DTI stands for debt-to-income ratio. It measures what portion of your monthly income goes toward paying off your debts. For example, if you owe $20,000 on your car loan, and earn $2,500 each month, your DTI would be 50%.
Your DTI determines how much you’ll pay per month towards your mortgage. The higher your DTI, the less you’ll pay each month.
You can find out your DTI by looking at your credit report. To do this, go to www.annualcreditreport.com. Once there, select the option to check your credit report.
Types Of FHA Home Loans
There are three main categories of Federal Housing Administration (FHA) home loan programs: conforming, non-conforming, and jumbos. Conformable loans are those offered to borrowers whose credit scores meet certain requirements. Non-conforming loans are those that do not require a borrower to have good credit. Jumbos are available to purchase properties with appraised value over $625,000.
Conventional mortgage rates are typically lower than FHA rates. However, conventional loans tend to carry higher monthly payments because of their longer term.
Purchase vs “Refinance”: How Much Does Mortgage Rate Matter?”
A lower DTI makes it harder to qualify for a mortgage, while a high one makes it easier. But what about your credit score? If you want to refinance into a fixed-rate mortgage, your credit score matters because it affects the amount of interest you pay. And if you’re buying a home, your credit score helps determine whether you qualify for an FHA loan.
The difference between purchase and refinance rates depends on several factors, including your current interest rate, the length of your term, and the type of loan you choose. In general, the longer you plan to keep your mortgage, the better your chances are of finding a low rate. Also, the lower your DTI, the less likely you’ll find a competitive rate.
Your credit score also plays a role in determining your ability to obtain financing. For example, a lower score could make it difficult to qualify for a conventional loan. On the flip side, a higher score might help you qualify for an FHASingle Family Housing (SFH), which offers borrowers a chance to repay their loans over a shorter period of time.
In addition to the above, there are certain types of mortgages that require a higher DTI than others. Here’s a quick rundown of some popular options:
- Conventional Loan – This type of loan requires a DTI of no greater than 580.
- Adjustable-Rate Mortgages (ARM) – These types of loans allow for variable interest rates that adjust periodically based on market conditions. ARM rates typically range from 3% to 5%.
- Fixed-Rate Mortgages – These types of loans offer a fixed interest rate for the life of the loan. They often come with a prepayment penalty.
FHA Rate/Term Refinances
An FHA rate/term refi makes sense for homeowners looking to reduce monthly payments while keeping up to date on mortgage insurance premiums (MIP). With an FHA rate/term, you can take advantage of lower interest rates while paying less MIP. You can even use an FHA rate/ term to consolidate multiple loans into one.
The process is simple. First, find out how much equity you have in your home. Then, apply online for an FHA rate/refi. Once approved, you will receive a letter stating the amount of money you can borrow and the length of your new loan.
FHA Streamline
We explain what it is, why it works, and how to apply.
The Federal Housing Administration (FHA) offers borrowers the opportunity to refinance into a lower rate while keeping their home. This is called an FHA Streamline Refinance Mortgage.
If you are looking to buy a home, we recommend getting pre-approved for a loan. Pre-approvals ensure you know exactly what type of loan you qualify for and what your payment amount will be.
A common misconception about FHA mortgages is that they require less documentation than conventional mortgages. In fact, most FHA lenders do require some form of verification of employment and income. However, there are ways around this requirement. For example, many employers provide proof of income to employees via W2 forms. If you don’t receive a W2 form, you can ask your employer for one.
You may think that because you’re refinancing, you won’t need to pay PMI. But even though you’re paying off your old loan, you still need to keep up with payments on your original loan. So make sure you continue making those payments every month.
Program Eligibility
The following occupancy restrictions apply to all programs:
- Occupancy Restrictions – All units must be occupied by one family per unit.
- Income Limits – Units cannot exceed $1 million in gross income annually.
- First Mortgage Program – Only condos with a first mortgage may participate in this program.
