The Federal Housing Authority - known as the FHA - can give mortgage loans to qualifying homeowners. They are considered the easiest loans to obtain out of mortgage loans that require less than a 5 percent down payment. There are basic loan requirements in order to receive financing from the FHA. The organization provides these guidelines as well as tips for those looking to receive an FHA loan.
FHA requirements include two years of steady employment, increasing or consistent income over the past two years, the credit report should reflect no more than two thirty-day-late reports in the last two years as well as a minimum credit score of 620 though sometimes a credit score is not required at all. Any bankruptcies must be at least two years old, with perfect credit since discharge. Foreclosures must be three or more years old, with perfect credit since as well. The new mortgage should comprise roughly 30% of the borrower's annual gross income, that is, yearly income before taxes.
Though these are just the basic guidelines for what qualify a homeowner for an FHA loan, they are a fairly accurate litmus test to see if one will indeed get an FHA mortgage.
There are several types of FHA loans available to borrowers. The FHA Adjustable Rate loan is designed for low- or moderate-income families making the transition into homeownership. There are also fixed rate loans available to those who have not been able to put aside money for a home, like recent college graduates or those still completing their education. The FHA Energy Efficient Mortgage allows borrowers to drastically reduce their monthly utility bills by incorporating the costs of energy-efficient repairs to the property into the loan amount. Graduated payment loans are designed for those making low- to moderate-income but who plan on their income drastically increasing over the next five to ten years. Growing equity mortgages are for those with a limited income who expect their income to increase in the future, so their payment amounts increase with time as well. There are also condominium loans available through FHA financing.
Like other lenders, the FHA offers reverse mortgages to borrowers age 62 and over. A reverse mortgage allows the borrower to cash out a loan equal to the equity they have in their property. The credit report, appraised value of the property and current interest rates all affect the terms of this loan. By taking out a reverse mortgage, also known as a HECM loan, borrowers are not required to pay the loan back until they no longer use the property as their primary residence.
Many think that the FHA regulates its interests rates through some kind of strict guidelines, but the truth is that its interest rates are determined by the same principles and market forces as conventional loans. The lender and borrower decide on an interest rate based on several factors, which can often include credit score. Unlike conventional loans, the FHA interest rates are not solely based on credit score, but it is something that is heavily considered when determining the terms of the loan.
The FHA does not set specific caps on closing costs, though it does insist costs are "reasonable and customary," though what exactly constitutes that description is not specified, and costs are usually evaluated on a case-by-case basis. The borrower must adhere to all restrictions the FHA sets forth, yet most of these restrictions protect the borrower by ensuring that the lender does not pass down costs it would have to cover anyways, such as tax service fees or other items.
FHA loans are typically easier to receive than most conventional loans, but there are still rules and regulations. The above guidelines provide the basic framework for obtaining a loan, and though credit score is not the only means of calculating interest rate, typical financial information still affects the terms of the loan. There are many forms of FHA home loans available, and the advice of an experience real estate attorney is always an asset when considering taking out a mortgage. Contact our office today for your free initial consultation.
