FHA Mortgages

An FHA loan is a mortgage loan that's insured by the Federal Housing Administration (FHA).  The Federal Housing Administration (FHA) is a government program created in 1934 to make home financing available to more American families. Today, it's part of the Department of Housing and Urban Development (HUD). Basically, they insure home loans made by private lenders. With this government backing, lenders are more willing to offer mortgages to people they wouldn't normally qualify, due to credit problems or other factors.

The FHA does not actually make home loans — rather, it insures loans that are made by traditional lenders. If the home owner defaults on the mortgage, the lender knows the government will make them whole from losses associated with the property.

Why do borrowers use FHA loans?

The current mortgage industry has become very conservative as a result of the problems in the past couple of years.  Because of this shift to basic mortgages many clients find an FHA mortgage the best mortgage available to them. Additionally, in many cases it is the borrower’s only option.

Less Money Down - FHA requires you put a minimum of 3.5% down.   Most conventional mortgages require at least 5% down and in some cases even as much as 20%.  Also FHA allows the seller to pay a larger portion of the buyers closing costs (up to 6% of the purchase price) versus a conventional mortgage.  When we combine the small down payment and the seller assisting in the closing costs it really can reduce the funds the buyer needs for closing.

Easier Qualification Process – Although the government is insuring the loan, FHA requires the loan to make sense…everything must be documented and all income and assets most be proven through pay stubs and bank statements.  Because of the government backing FHA allows lower credit scores then conventional mortgages. Typically a credit score of at least 620 is required for an FHA loan. 

To qualify for an FHA mortgage, the following items are required for each borrower:

·         Most recent 30 days of paycheck stubs

·         Most recent last two months banking and retirement statements (all pages even if they are blank)

·         Copies of valid Drivers License and Social Security Card

·         The last two years completed and filed Federal Income Tax Returns. We will also need proof of payment if the returns showed any money was owed.  The returns must be signed as well.

·         Most recent two years W-2’s           

Credit Requirements – We pull all three credit bureau’s reports and we use the middle score for each borrower…then we base the loan on the LOWER of the two middle scores.  Both borrowers must have a credit score of 620 or greater to qualify from a credit score only perspective.  If a borrower’s score is below this level, they must be removed from the loan.  This also means we cannot use the income or assets from this person as well.