There are FHA loans that are available for both residents and prospective residents, who want to purchase a home within the state. FHA will usually provide options to those who would not qualify otherwise for a conventional mortgage loan. All mortgage lenders and banks do not offer FHA loans. A lender is required to have a Direct Endorsement and undergo a comprehensive approval process from HUD in order to do so. The FHA, contrary to popular belief, doesn’t offer these loans directly. The FHA insures these loans to improve housing conditions and standards.
The FHA 203b Fixed Rate Home Loan Program – The 203(b) is the most widely used and common type of FHA purchase loan program. The FHA standard loan guidelines apply, and there is a minimum 3.5% of Sales Price down payment that is required. Prospective homeowners are allowed to use gift funds for their down payment. A maximum LTV (loan-to-value) of 96.50% may be financed.
Eligible properties may be existing or new one-to-four single family structures. They may be a townhouse, condo, or house, in either a rural or urban area. The maximum allowable loan amount is specified by the County since in certain areas there are limits on the amount that an FHA 203b loan can be.
On a home loan, the financing term is either 30 or 15 years. A majority of home buyers choose a 30-year term since the monthly payments are usually lower than a conventional loan.
FHA 203k loan program – With this kind of loan the property calls for or requires repairs. It enable the home buyer to obtain the money needed for making necessary repairs that are included in the loan amount that is financed. Typically the borrower will borrow the Sales Price along with the estimated repair cost amount.
There are three different kinds of FHA 203 mortgage loans that are available: (1) Homestyle Program, (2) Consultant Program, and (3) Streamline Program. They each have their own distinct guidelines, benefits, and features. With Streamline, there isn’t any minimum amount. However, there is a maximum amount for repair work that may be added onto the loan. No maximum repair may be added to a Consultant Loan. When it comes to the Homestyle Home Program, it is the conventional loan equivalent of the FHA’s 203K loan program.
Properties that are eligible are one-to-four single-family houses that have been completed for one year at least. You can purchase a home that was torn down if a majority of the foundation structures are in place still or in good condition. Each property needs to qualify for being an FHA property under the FHA’s home loan requirements.
The County specific maximum loan requirements apply to all of the 203B and 203K home purchase loans.
Mortgage Insurance Premium (MIP) is required on all FHA loans. Mortgage Insurance provides lenders with protection in case the loan defaults in the future. The mortgage insurance cost is solely the responsibility of the borrower. It includes an upfront UFMP (upfront mortgage insurance premium) which equate to 1.75% that is added onto the loan amount or may be paid at closing by the borrower. The monthly MIP (mortgage insurance premium) is calculated based on the loan-to-value and the loan term. This mortgage insurance premium is applicable for the loan’s entire term, no matter what the loan-to-value (LTV), amortization type, or term is.
– Lower Interest Rate – An FHA loan when compared with conventional loans, carry lower interest rates. A lower rate can be offered since the HUD insures the loan against future default.
– Lower Down Payment – An FHA loan has a minimum 3.5% down payment compared to a conventional loan which has a 5% minimum. The borrower also can use a gift from their family to use for the down payment on their home.
– Lower Credit Qualifying – the minimum credit score that is required is lower on an FHA loan compared with a conventional loan. Mortgage Lenders can offer FHA loans to borrowers who have FICO scores that are as low as 580. Borrowers with scores down to 500 can still qualify to get a loan if they have a minimum down payment of at least 10%. The FHA loan approval process is more comfortable and relaxed.
– Higher Debt-to-Income Ratio (DTI) – On an FHA loan, the debt-to-income ratio can be as high as 57%, and an underwriting system automated approval. With a conventional loan, 45% DTI is the maximum. What does that mean? It enables the home buyer to buy a home with a higher sales price. Many times, a higher DTI will determine whether or not a borrower qualifies to get a home loan.
Prodigy Lending is a DBA of AmCap Mortgage, Ltd. (NMLS ID# 129122 – www.nmlsconsumeraccess.org/EntityDetails.aspx/COMPANY/129122), an Equal Housing Lender.
Managing RMLO: Jason Turner (NMLS #286357)