FHA Loans: Things To Consider

First review the requirements and common fees for FHA loans. The requirements can be broken down into three ideas.  The first is capacity. Are you making enough money to pay for the new loan without difficulty? In order to qualify for an FHA loan the combined gross monthly income of borrowers should normally be at least three times greater than the projected monthly mortgage payment (including taxes and insurance).

The second is collateral. Do you have equity in your home to get a traditional FHA loan? Through the traditional FHA program one can refinance up to 97% of the current appraised value of a home. Through the new Homeowner Affordability and Stability Plan you can finance up to 105% of of the current value of the home.

The final is character. This is the credit score required for traditional FHA loans. Your credit history comes into play with any home loan application. Lenders insist that borrowers show that they are accountable and that they assiduously seek to meet their financial obligations. The minimum credit score needed for an FHA loan is now 640.

As with any mortgage there are fees associated with government-backed loans. Some people assume the government is the lender with FHA loans but that is not the case. FHA loans are simply loans that are backed or insured by the federal government. In other words regular banks lend the money but with an FHA loan it is like having Uncle Sam co-sign with you.

What are the fees involved with an FHA loan?

Depending on the size of the loan and the terms, bank fees will usually range between about $1100 to $5000.

There are fixed fees that usually amount to about $1100 and then it is common for there to be a loan origination fee of at least 1% of the loan amount. Title and escrow fees are fees charged by the title company and vary from state to state. It is common for these fees to tally $1000-2000. The larger the loan, the larger the title and escrow fees. Another cost are pre-paid items which are pre-payments on property taxes and homeowners insurance.

FHA insists that taxes and insurance be included in the escrow account and paid monthly. While these aren’t fees (since you are simply paying ahead on taxes and insurance) they do need to be added to the loan amount or otherwise paid in advance.

Finally, there is a 1.75% mortgage insurance premium that Uncle Sam requires in exchange for essentially co-signing on your FHA loan. This mortgage insurance premium (along with the mandatory monthly mortgage insurance fees) helps keep the FHA solvent and able to pay the banks back when FHA borrowers default on their loans. This fee does not apply to conforming loans refinanced under the Homeowner Affordability and Stability Plan. Some other items you will need as you go through the process include: your last two years W2′s and recent pay stubs for income verification, plus two months of recent bank statements for asset verification. Other verifications are occasionally needed as well.

Now what? Contact someone who can help you get started in the process and can get FHA loans done in as little as Ten Days!

Related Posts

• The Cost of an FHA Loan
• FHA Mortgage Facts From FHA Outlook
• Arizona FHA Loans – As Popular As Ever
• Acceptable Sources of Funds For Closing Costs / Down Payment

As with any mortgage there are costs associated with government-backed loans. Some people think the government is the lender with FHA loans but that is not the case. FHA loans are simply loans that are backed or insured by the federal government.  Regular banks lend the money but with an FHA loan it is like having Uncle Sam co-sign with you.

Having Uncle Sam co-sign means people with less than perfect credit can get an FHA home loan whereas the banks would have rejected them otherwise (though banks are requiring at least a 640 credit score even with FHA loans). Having government backing on a loan also means that borrowers can get up to 97% of the appraised value of a home with traditional FHA loans rather than the 80-90% limit most banks impose on conventional loans. FHA loans also allow you to get the rates of those with excellent credit.  FHA loans are often the best or only solution for people with not much equity or less than stellar credit. But the fee structures on FHA loans are similar to conventional loans.

FHA loans: What fees are there?

Bank fees can range anywhere from about $1100 to $5000 depending on the size of the loan and the terms worked out. There are fixed fees that usually amount to about $1100 and then it is common for there to be a loan origination fee of at least 1% of the loan amount. Title and escrow fees are fees charged by the title company and vary from state to state. It is common for these fees to tally $1000-2000. The larger the loan, the larger the title and escrow fees. Another cost are pre-paid items which are pre-payments on property taxes and homeowners insurance. FHA insists that taxes and insurance be included in the escrow account and paid monthly. While these aren’t fees (since you are simply paying ahead on taxes and insurance) they do need to be added to the loan amount or otherwise paid in advance. Finally, there is a 1.75% mortgage insurance premium that Uncle Sam requires in exchange for essentially co-signing on your FHA loan. This mortgage insurance premium (along with the mandatory monthly mortgage insurance fees) helps keep the FHA solvent and able to pay the banks back when FHA borrowers default on their loans. This fee does not apply to conforming loans refinanced under the Homeowner Affordability and Stability Plan. Some other items you will need as you go through the process include: your last two years W2′s and recent pay stubs for income verification, plus two months of recent bank statements for asset verification. Other verifications are occasionally needed as well.

So as an example you should expect fees on an FHA loan of about $150,000 to look something like this: ~$2500 in bank fees, ~$1200 in title fees, ~$1300 in prepaid items, and ~$2625 for the upfront FHA mortgage insurance premium. That adds up to more than $7500 added to the overall loan amount after the refinance. Be prepared for balance increases as you look to refinance.

Of course the positives of refinancing into a fixed-rate FHA loan often far outweigh the negatives of a slightly higher mortgage balance. If you are in an adjustable rate mortgage (ARM) that is about to shoot up or just in a bad loan in general you can often lower your monthly payments by hundreds of dollars. Not only does a lower monthly payment ease your month to month burden but you will usually save a lot of money in the long run in spite of the refinance fees discussed here. As a general rule, the longer you plan to stay in your home the more sense getting a refinance makes.

What to do next? Contact someone who can help you get started in the process and can get FHA loans done in as little as Ten Days!

Related Posts

• Basic Steps to Acquiring a Government-backed FHA loan
• FHA Mortgage Facts From FHA Outlook
• Arizona FHA Loans – As Popular As Ever
• Acceptable Sources of Funds For Closing Costs / Down Payment

We have received the “more-than-normal” questions about the FHA 203k streamline program recently – probably due to the high numbers of bank-owned properties that are currently for sale all across the valley.

If you have been shopping for homes, it is no mystery that when a property is currently owned by a lender, often times, it needs a “little bit of work”. How do you know if a property will pass an FHA inspection for a “regular” FHA loan? Well, if it needs a “little bit of work” and the work entails one of the things below, your property will probably qualify as-is for a “regular” FHA loan because these are considered cosmetic things.

Arizona FHA Loan Cosmetic Repairs

• Missing Handrails
• Cracked or damaged exit doors that are otherwise operable
• Cracked window glass
• Defective paint surfaces in homes constructed post 1978
• Minor plumbing leaks (such as leaky faucets)
• Defective floor finish/covering
• Evidence of previous (non-active) wood destroying insect/organism damage
• Rotten or worn-out counter-tops
• Damaged plaster, sheet-rock or other wall and ceiling materials in homes
• Poor workmanship
• Trip hazards
• Crawl space with debris
• Lack of all-weather driveway surface

Does the house you are considering need repairs? Are they considered cosmetic or something “more than cosmetic”? If they are more than cosmetic, it doesn’t mean that you can’t get an Arizona FHA loan, it just means that you will want to look at the FHA 203k streamline program as one of the best options available for homes that need a little more work done than just cosmetic work.

Related Posts

• Basic Steps to Acquiring a Government-backed FHA loan
• The Cost of an FHA Loan
• FHA 203k Streamline: How Do Payments Work?
• FHA 203k Streamline: Contractor Requirements

From time to time, I am asked questions about the FHA program or FHA loans by various people such as:

• “How long does it take to fund an FHA loan?’
• “What is an average FICO score for someone who gets an FHA loan?”
• “Is the Hope for Homeowners program real?”
• “How come I have never heard of the 203k streamline program?”

I am sure there are many places to get the answers to the above questions, but one quick place to find these answers is on HUD’s website under the FHA Outlook section – the answers below came from their most recent, early-November FHA Outlook report:

What is an average FICO score for someone who gets an FHA loan?

For people who were buying a home with an FHA loan, the average FICO score for the first 2 weeks in November was 693.

For people who were refinancing a home with an FHA loan, the average FICO score for the first 2 weeks in November was 662.

How long does it take to fund an FHA loan?

For the first 2 weeks in November, it took an average of about 5.5 weeks from application to closing.

How come I have never heard of the 203k streamline program?

Probably because it is not done very often.  There were 628 of them done in the first 2 weeks of November.

Is the Hope for Homeowners program “real”?

In the first 2 weeks of November, for the 40k or so refinance transactions that were done, 69 were Hope-for-Homeowners cases.  40,000 FHA refinances… 69 Hope for Homeowners.  Does that answer your question?

Related Posts

• Basic Steps to Acquiring a Government-backed FHA loan
• The Cost of an FHA Loan
• Arizona FHA Loans – As Popular As Ever
• Acceptable Sources of Funds For Closing Costs / Down Payment

Recently, we were speaking with a group of sales professionals who work for a local roofing company about the benefits of the FHA 203k loan program and how it can potentially help their clients.

After introductions, we started speaking about the FHA loan programs and which ones would be right for what types of situations and the sales manager interrupted us and said:

“Hey, guys — pay attention! I personally have an FHA loan on my house and this is not the first house that I have bought!”

Which got me to thinking: exactly how popular are FHA loans today?

If the data released today by the Mortgage Bankers Association is any indication, FHA loans are as popular as ever.

According to the release:

• FHA loan applications were up 113.6 percent from a year ago in October, while applications for conventional loans were down 49.7 percent.
• FHA loan refinancings from conventional loans to FHA-insured loans were up 144.3 percent from a year ago.
• FHA loans accounted for about one in three mortgage applications in the month of October.
• Since the MBA began surveying loan applications in January 1990, FHA loans have ranged from a low of 5.8 percent of total applications in August 2005, to a high of 43.8 percent in February 1990.

Are FHA loans popular?

Yes.

Even the sales managers at our local roofing companies know that!

Related Posts

• Basic Steps to Acquiring a Government-backed FHA loan
• The Cost of an FHA Loan
• FHA Mortgage Facts From FHA Outlook
• Acceptable Sources of Funds For Closing Costs / Down Payment