Are you thinking about or in the process of buying your first home?

Congratulations!

In terms of “is now a good time to buy or not” I think you will probably look back in 5 years and be glad you moved when you did.

One of the most common questions we get from first time home buyers is “what does it take to qualify for a loan?” so I thought I would outline the qualification criteria for one of the most popular programs available for first time home buyers — the FHA loan program.

FHA Loan Programs: 3 Basic Choices

The most popular loan option for first time home buyers is the traditional FHA loan. In recent years as other mortgage programs have been eliminated by lenders, the FHA loan is now as popular as it ever has been.

With FHA loans, you have a choice of 3 basic loan programs, the 1 year adjustable rate loan, a hybrid adjustable rate loan and the 30 year fixed rate loan. Right now, the FHA 30 year fixed rate loans are by far the most popular option because fixed rates are close to the same interest rate as the adjustable ones are – and sometimes even lower!

FHA Loan Programs: What It Takes To Qualify

FHA has long been known for it’s flexible underwriting standards – meaning if you are not approved though the computerized automated underwriting system, a FHA-approved underwriter can look at your file and manually approve it based on a number of factors that the computer couldn’t account for.

In general, in order to be approved for an FHA loan in today’s market, the following apply:

• Need enough money for the 3.5% down payment requirement
• Need above a 580 middle credit score for all borrowers
• Must plan to live in the home as your primary residence
• Must have employment history for at least 2 years, preferably at the same job or in the same field
• Must be able to document your income through W2′s/paystubs or tax returns
• New mortgage payment should be *approximately* 30% of your gross income

These are the basic FHA qualifying criteria – if you answer most of these with a “yes, I have that” there is a good chance that we can help you get qualified for an FHA loan so that you can take advantage of this buyers market and get into that first house you have been working towards.

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Most people already know that FHA is short for Federal Housing Administration – it is all over the news in recent months. And as you may also know – FHA doesn’t actually lend anyone money, they only insure loans that are underwritten to certain criteria.

Some of the most common questions that I hear regarding FHA programs include:

• What is FHA mortgage insurance and how does it work?
• Why would I want an FHA mortgage?
• Is FHA new? How long has FHA been in existence?

One of the most popular questions I often hear is “what is FHA mortgage insurance and how does it work?”

Unlike conventional loans that must conform to strict underwriting guidelines, FHA-insured loans require very little cash investment to close a loan. There is more flexibility in calculating household income and payment ratios. The cost of the mortgage insurance is passed along to the homeowner and typically is included in the monthly payment. In most cases, the insurance cost to the homeowner will drop off after five years or when the remaining balance on the loan is 78 percent of the value of the property -whichever is longer.

Another popular question I have heard recently is “Why would I want an FHA mortgage?”

There are many reasons to use FHA but to highlight a few of them you would have to break it down by whether you were interested in a mortgage for buying a new house or if you were just interested in refinancing your existing house.

For purchases, FHA is a great option for:

1. First-time home buyers because FHA does not require a credit score to be approved so people with no traditional credit can still qualify.
2. People with less than perfect previous credit, because FHA doesn’t have any minimum credit score requirement your actual credit score actually has very little to do with your loan approval but instead your entire credit profile will be reviewed.
3. Very little money out of pocket and with certain programs and down payment assistance ZERO out of pocket is very possible.

For people who are looking at FHA for refinancing options, FHA is a great option for:

1. People with some credit challenges but they have other compensating factors such as good debt to income requirements or good loan to value requirements or a good history of job stability, these types of things can be looked at on FHA loans whereas with other types of loans it is a very cut and dry decision for the most part.
2. Need cash out up to 95% of their property but can’t afford to high 9% interest rates that are offered for those type of loans. FHA’s 95% cash out rates are much lower than that.
3. Not much equity left in the home but you need to secure a lower interest rate or a fixed interest rate. Because of the fact FHA allow for you to go to 97.15% of the property value on a rate and term refinance it allows homeowners to secure lower fixed interest payments at a very high loan to value percentage.
4. Manufactured home financing is a big part of FHA, most lenders run away from any type of manufactured home as fast as they can but with FHA you are able to go up to 95% cash out and 97.15% rate and term as to where most other loan type (not FHA loans) will have loan to value caps of 65-80%.
5. FHA loans are assumable loans, which means if you need to sell your home but for whatever reason you can’t then an FHA assumable loan could actually benefit you and your potential buyer if you secured a low 30 year fixed rate your home might be more apt to sell then if they have to get there own financing at 1 or 2% higher than what you already have. Also it is a great feature to have if you want to hand the home to your child/children. The only thing is that the person has to meet the credit and income criteria to be able to assume the loan.
6. If you currently have an FHA loan, you can participate in an FHA streamline program pretty much at any time you are in the loan. There is no employment verification and you can move from a 30 year to a 15 year or vice a versa or you can move from an ARM to a FIXED or pretty much any program to another and it allows you to defer 1 possibly 2 mortgage payments.

Occasionally, someone will ask me “How long has FHA been around?”

Congress created the Federal Housing Administration (FHA) in 1934. The FHA became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing in 1965.

When the FHA was created, the housing industry was flat on its back — two million construction workers had lost their jobs. Terms were difficult to meet for home buyers seeking mortgages — mortgage loan terms were limited to 50 percent of the property’s market value, with a repayment schedule spread over three to five years and ending with a balloon payment.

During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war and by 2001, the nation’s home ownership rate had soared to an all time high of 68.1 percent.

The FHA and HUD have insured over 34 million home mortgages and 47,205 multifamily project mortgages since 1934. FHA currently has 4.8 million insured single family mortgages and 13,000 insured multifamily projects in its portfolio, in the more than 60 years since the FHA was created, much has changed and Americans are now arguably the best housed people in the world. HUD has helped greatly with that success.

To learn more information about FHA, a great place to start is www.hud.gov or www.fha.gov.

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