The recent credit crunch in the mortgage industry has prompted consumers to examine their options carefully. An outstanding option for home buyers and current homeowners making a comeback is FHA (Federal Housing Administration) loans. The desire for secure options in a volatile market is making FHA loans more attractive.
But many people don't understand FHA and if it's right for them. While there's still a bevy of conventional loan options available, the guidelines have been tightened and for some people with less-than-perfect credit, FHA may be just what they're looking for.
FHA is generally more flexible than conventional loans. Look for guidelines requiring two years from bankruptcy discharge date, paid tax liens and judgments and 3 years from a resolved foreclosure. It is even possible to qualify with no credit score, but you must be able to prove regular payment and financial responsibility in some other forms, such as utility bills or rent.
Contrary to popular belief, there is no minimum or maximum income limits for FHA. The key for qualification for income is not the type of income, but the fact a borrower can prove reliable and steady income. Even part-time income can be considered if earned for a significant period of time.
Down Payment / Equity
The max loan-to-value ratio for FHA loans is 97%, meaning you must have 3% down payment or equity in the home. The bright side of buying a home with FHA is you can use gifts, grants and concession for your down payment. For a cash-out refinance with FHA, the max LTV is 95%. One thing to keep in mind is FHA does have loan limits based on geographical location.
Mortgage insurance is a policy that protects lenders from losses on defaulted loans. It is required for borrowers that have less than a 20% down payment. Since FHA insures all FHA loans, the guidelines for FHA loans can be a little more lenient. FHA does require an upfront mortgage insurance premium of 1.5% of the loan amount. After closing, you will be responsible for mortgage insurance premium paid monthly for a minimum of 5 years.
FHA has helped more than 30 million people become homeowners since 1934 and is becoming increasingly involved with options for borrowers who have adjustable rate mortgages that will re-set and may be facing foreclosure.
As always, it is advised that you speak with a mortgage professional about your specific situation and what loan is right for you.
-- Published on Nov 09, 2007