Here is the most sought after program in today’s market. FHA, which stands for Federal Housing Authority, a government agency, does not loan money but rather provides insurance for borrower(buying or refinancing) to protect the lender in case the borrower defaults on their mortgage. Therefore, since the lender has that extra protection, particularly when the down payment is low – minimum of 3.5% – they are willing to provide mortgages even to people with substandard credit scores, at reasonable interest rates. This is possible because the borrower pays a certain amount in both upfront as well as monthly Private Mortgage Insurance(PMI) fees. PMI is provided by the Federal Housing Administration to protect the lender in case of default. For a complete explanation of PMI, how it is calculated, and how to get rid of it visit our What is PMI page. Also check our blog for the tax benefits.
Following are some of the main benefits of FHA loans:
- Loan to Value - up to 96.5% financing on purchases and up to 85% on refinances.
- Down Payment - the minimum down payment of 3.5% can come from relatives, a government subsidy program, union, 401K, or a variety of other sources. Check your options in the Down Payment Assistance page.
- Credit scores – down to 580 but this number keeps changing constantly co call for the most recent information. Lower scores may qualify with proper compensating factors. For important information regarding your credit score check out the What is a credit score page and also our blog. One of the main advantages of FHA is that even if you don't have credit scores they will allow non-traditional credit reports. These are reports that can be obtained through private companies or the same lender evaluating the case, that creates scores based on other history such as your utilities bill, rent, insurance, student loan histories and others.
- Qualifying properties – single family residence, town homes, condos and even manufactured homes that meet certain guidelines. Condos have to have been approved as per FHA/HUD’s area guidelines. Otherwise, the home owners association would have to submit the proper paperwork to be approved.
- Income Documentation - all income has to be verified by way of paystubs and W2’s. If a person is self employed or received variable income such as gratuities, overtime or commissions then tax returns will be required.
- Job Requirements – must have had a steady job for the past 2 years. Valid letters of explanation will be required to explain gaps in employment.
- Non occupying co-borrower – a relative’s income and credit history can be used for qualification purposes even if he/she will not be occupying the property.
- Loan amount - max loan amount in Palm Beach, Broward and Miami-Dade is $423,750. Other counties such as Monroe(the Keys) can go much higher. Call or email us for other counties. For larger size loans please look ate our JUMBO Loans program.
- Seller Contribution - maximum of 6% seller contribution towards closing costs. There is discussion about lowering this so call for details.
- Purpose of Loan - loans are ONLY for occupying borrowers. Investors could buy properties through the HUD REO program.
- Foreclosures – foreclosures in the credit report have to show that a minimum of 3 years have transpired since the date of the foreclosure. Call or email us for details.
- Bankruptcies - chapter 13 bankruptcies are allowed to refinance if it has been at least a year since the petition was filed. A good BK payment history will be necessary. Chapter 7 must have been discharged for at least 2 years or possibly 1 year with a hardship letter.
- Flipping – FHA will now allow temporarily a loan for a property that was sold less than 3 months ago. However, lenders still have additional requirements. Properties that were sold between 3-12 months prior, are allowed with additional restrictions.
FHA loans are constantly evolving and being revised by Congress. Some of these changes are happening faster than we can implement them here. For additional details on FHA rules and regulations call or email us.
Please check also our other FHA programs:
- FHA Streamline – to refinance an FHA into another FHA loan with minimal costs.
Call or email us for a FREE no obligations consultation and one of our agents will be happy to assist.