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.
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