FHA
What Is FHA/HUD?
Also
known as HUD, the U.S. Department of Housing and Urban Development
was established in 1965 to develop national policies and programs
to address housing needs in the U.S. One of HUD’s primary missions
is to create a suitable living environment for all Americans by
developing and improving the country’s communities and enforcing
fair housing laws
How Does HUD Help Homebuyers and Homeowners?
HUD
helps people by administering a variety of FHA programs that develop
and support affordable housing. Specifically, HUD plays a large
role in homeownership by making FHA loans available for lower- and moderate-income
families through its FHA mortgage insurance program and its HUD
Homes program. HUD owns homes in many communities throughout the
U.S. and offers them for sale at attractive prices and economical
terms. HUD also seeks to protect consumers through education, Fair
Housing Laws, and housing rehabilitation initiatives.
What is the FHA?
Now an agency within HUD, the Federal Housing Administration was established
in 1934 to advance opportunities for Americans to own homes. By
providing private lenders with mortgage insurance, the FHA gives
them the security they need to lend to first-time buyers who might
not be able to qualify for conventional loans. The FHA has helped
more than 26 million Americans buy a home.
How Can The FHA Assit Me In Buying A Home?
The FHA works to make homeownership a possibility for more Americans.
With the FHA, you don’t need perfect credit or a high-paying job
to qualify for a FHA loan. The FHA also makes FHA loans more accessible
by requiring smaller down payments than conventional loans. In fact,
an FHA down payment could be as little as a few months rent. And
your monthly payments may not be much more than rent.
How Is The FHA Funded?
Lender claims paid by the FHA mortgage insurance program are drawn from
the Mutual Mortgage Insurance fund. This fund is made up of premiums
paid by FHA-insured loan borrowers. No tax dollars are used to fund
the program.
Who Can Qualify For FHA Loans
Anyone who meets the credit requirements, can afford the mortgage payments
and cash investment, and who plans to use the mortgaged property
as a primary residence may apply for an FHA-insured loan.
What IS The FHA Loan Limit?
As of August, 2008, FHA loan limits varied throughout the country, from $417,000 in low-cost
areas to $829,750 in high-cost areas. The FHA loan maximums for multi-unit
homes are higher than those for single units and also vary by area.
Because
these maximums are linked to the conforming loan limit and average
area home prices, FHA loan limits are periodically subject to change.
Ask your lender for details and confirmation of current limits.
What Are The Stops Involved In The FHA Loan Process?
With
the exception of a few additional forms, the FHA loan application
process is similar to that of a conventional loan (see Question
47). With new automation measures, FHA loans may be originated more
quickly than before. And, if you don’t prefer a face-to-face meeting,
you can apply for an FHA loan via mail, telephone, the Internet,
or video conference.
How Much Income Do I Need To Have To Qualify For A FHA Loan?
There
is no minimum income requirement. But you must prove steady income
for at least three years, and demonstrate that you’ve consistently
paid your bills on time.
What Qualifies As An Income Source For The FHA?
Seasonal
pay, child support, retirement pension payments, unemployment compensation,
VA benefits, military pay, Social Security income, alimony, and
rent paid by family all qualify as income sources. Part-time pay,
overtime, and bonus pay also count as long as they are steady. Special
savings plans-such as those set up by a church or community association
- qualify, too. Income type is not as important as income steadiness
with the FHA.
Can I Carry Debt And Still Qualify For A FHA Loan?
Yes.
Short-term debt doesn’t count as long as it can be paid off within
10 months. And some regular expenses, like child care costs, are
not considered debt. Talk to your lender or real estate agent about
meeting the FHA debt-to-income ratio.
What Is The Debt-To-Inocme Ratio For FHA Loans?
The
FHA allows you to use 29% of your income towards housing costs and
41% towards housing expenses and other long-term debt. With a mortgage
loan, this qualifying ratio allows only 28% toward housing and 36%
towards housing and other debt
Can I Exceed This Ratio?
You
may qualify to exceed if you have:
- a
large down payment
- a
demonstrated ability to pay more toward your housing expenses
- substantial
cash reserves
- net
worth enough to repay the mortgage regardless of income
- evidence
of acceptable credit history or limited credit use
- less-than-maximum
mortgage terms
- funds
provided by an organization
- a
decrease in monthly housing expenses
How Large A Down Payment Is Required With A FHA Loan?
You
must have a down payment of at least 3% of the purchase price of
the home. Most affordable loan programs offered by conforming lenders (Fannie Mae, Freddie Mac) require between a 0%-5% down payment, with a minimum of $500 coming directly from the borrower’s own funds.
What Can I Use As A Down Payment?
Besides
your own funds, you may use cash giftsor money from a private savings
club. If you can do certain repairs and improvements yourself, your
labor may be used as part of a down payment (called - sweat equity").
If you are doing a lease purchase, paying extra rent to the seller
may also be considered the same as accumulating cash.
How Does My Credit History Impact My Ability To Qualify?
The
FHA is generally more flexible than conventional lenders in its
qualifying guidelines. In fact, the FHA allows you to re-establish
credit if:
- two years have passed since a bankruptcy has been discharged.
- all judgments have been paid.
- any outstanding tax liens have been satisfied or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue.
- three years have passed since a foreclosure or a deed-in-lieu has been resolved.
Can I Qualify For A FHA Loan Without A Credit History?
Yes.
If you prefer to pay debts in cash or are too young to have established
credit, there are other ways to prove your eligibility. Talk to
your lender for details.
What Types Of Closing Costs are Associated With A FHA Loan?
Except
for the addition of an FHA mortgage insurance premium, FHA closing
costs are similar to those of a conventional loan outlined in Question
63. The FHA requires a single, upfront mortgage insurance premium
equal to 2.25% of the mortgage to be paid at closing(or 1.75% if
you complete the HELP program- see Question 91). This initial premium
may be partially refunded if the FHA loan is paid in full during the
first seven years of the FHA loan term. After closing, you will then
be responsible for an annual premium - paid monthly - if your mortgage
is over 15 years or if you have a 15-year FHA loan with an LTV greater
than 90%.
Can I Roll Closing Costs Into My FHA Loan?
No.
Though you can’t roll closing costs into your FHA loan, you may
be able to use the amount you pay for them to help satisfy the down
payment requirement. Ask your lender for details.
Are FHA Loans Assumable?
Yes.
You can assume an existing FHA-insured loan, or, if you are the
one deciding to sell, allow a buyer to assume yours. Assuming a
FHA loan can be very beneficial, since the process is streamlined
and less expensive compared to that for a new FHA loan. Also, assuming
a FHA loan can often result in a lower interest rate. The application
process consists basically of a credit check and no property appraisal
is required. And you must demonstrate that you have enough income
to support the FHA loan. In this way, qualifying to assume
a FHA loan is similar to the qualification requirements for a new one.
What Should I Do If I Miss A Mortgage Payment?
Call
or, write to your lender as soon as possible. Clearly explain the
situation and be prepared to provide him or her with financial information.
Are There Any Options If I Fall Behind On My FHA Loan Payments?
Yes.
Talk to your lender or a HUD-approved counseling agency for details.
Listed below are a few options that may help you get back on track.
For FHA Loans:
Keep living in your home to qualify for assistance.
- Contact a HUD-approved housing counseling agency (1-800-569-4287 or TDD:
1-800-483-2209) and cooperate with the counselor/lender trying
to help you.
- HUD
has a number of special loss mitigation programsavailable to
help you:
- Special
Forbearance: Your lender will arrange for a revised repayment
plan which may Include temporary reduction or suspension of payments;
you can qualify by having an Involuntary reduction in your Income
or Increase In living expenses.
-
Mortgage Modification: Allows refinance debt and/or extend the term of
the your FHA which may reduce your monthly payments;
you can qualify if you have recovered from financial problems,
but net Income Is less than before.
- Partial
Claim: Your lender maybe able to help you obtain an interest-free
FHA loan from HUD to bring your mortgage current.
- Pre-foreclosure
Sale: Allows you to sell your property and pay off your FHA loan, to avoid foreclosure.
-
Deed-in Lieu of Foreclosure: Lets you voluntarily "give back"
your property to the lender; it won’t save your house but will
help you avoid the costs, time, and effort of the foreclosure
process.
- If
you are having difficulty with an-uncooperative lender or feel
your FHA loan servicer is not providing you with the most effective
loss mitigation options, call the FHA Loss Mitigation Center at
1-888-297-8685 for additional help.
For Conventional Loans:
Talk
to your lender about specific loss mitigation options. Work directly
with him or her to request a "workout packet." A secondary
lender, like Fannie Mae or Freddie Mac, may have purchased your
loan. Your lender can follow the appropriate guidelines set by Fannie
or Freddie to determine the best option for your situation.
Fannie
Mae does not deal directly with the borrower. They work with the
lender to determine the loss mitigation program that best fits your
needs.
Freddie
Mac, like Fannie Mae, will usually only work with the loan servicer.
However, if you encounter problems with your lender during the loss
mitigation process, you can coil customer service for help at 1-800-FREDDIE
(1-800-373-3343).
In
any loss mitigation situation, it is important to remember a few
helpful hints:
-
Explore
every reasonable alternative to avoid losing your home, but beware
of scams. For example, watch out for:
- Equity
skimming: a buyer offers to repay the mortgage or sell the property
if you sign over the deed and move out.
- Phony
counseling agencies: offer counseling for a fee when it is often
given at no charge.
- Don’t
sign anything you don’t understand.
For more helpful mortgage tips on a FHA loan, mortgage refinancing, home loans, reverse mortgages or a home equity line of credit, contact FreeLoanComparison.com today!
Last update: November 14, 2008
