FHA loans which are loans ensured by the federal housing administration oftentimes have gotten a bad rap, for the costs associated with them as well as the types of properties that will be insured by the FHA. The reality of it is that the NFA chain loan is by far unequivocally the most flexible loan out there in today’s environment for an out of the Box situation. Hear some things about FHA and some of the new ones you may not know and why the FHA loan might just fit the bill.
FHA loans are insured by the Federal Housing Administration. As a result, there is an upfront mortgage insurance premium of 1.75% of the loan amount and then there’s a monthly mortgage insurance premium based on 0.85% of the loan amount. So these loans can tend to be a bit more pricey than standard conventional mortgages. However, putting off an FHA loan to save more money to try to attempt a conventional loan when you are eligible for an FHA loan might not be as good of a proposition as taking the FHA loan and refinancing into the conventional loan in the future. Think of the FHA loan as a launch pad for a future more opportunistic mortgage situation. That being said here are some things about FHA loans most people don’t know about that might help you become more successful when financing residential real estate.
FHA loans are extremely flexible and will go up to a debt-income ratio as high as 56.99% given the credit score, the down payment, and the type of property you’re looking to purchase. Some mortgage companies will not do an FHA loan greater than 43% debt to income ratio which represents a qualified mortgage in the eyes of the CFPB. You want to find a lender WHO will underwrite the desktop underwriting scorecard and is willing to push the envelope for you and your family as long as you can afford the house payment. Bear in mind the debt-income ratio is only one element, the other is the front-end ratio which represents the mortgage payment per month inclusive of principal. interest. taxes. insurance, HOA does ( if applicable) divide into your gross monthly income. If this number is greater than 46.99% that could be problematic so this is something you’ll want to definitely make sure to address with the mortgage company when getting preapproved.
FHA will do most properties even though some properties might need work. Many times as a homebuyer you’ll see a property and the listing might say conventional loans only or cash only. This is due to something called deferred maintenance. Most folks are not super keen on deferred maintenance and what it is, it’s exactly how it sounds, the house needs some work. However, there are different degrees of work that will make or break the transaction for an FHA-insured loan or any type of residential loan for that matter. C1,C2 C3 C4 &c 5 are the five different residential deferred maintenance classifications. Anything from C1 to C3 for an FHA loan will work. C4 is highly suspect and beyond the property is unfinanceable. So if a listing agent says the property won’t go FHA the first question should be specifically why not? A lot of the time it’s just a matter of opinion about whether it will or will not go FHA and the ultimate determinant of who makes the decision is a licensed real estate appraiser, not a buyer’s agent and not a listing agent.
FHA will only lend on certain types of properties, for example, FHA will do a single-family home a planned unit development a condominium, or a multifamily all day long. However, there is a caveat for the house if it’s a condominium it has to be approved. Not all mortgage companies are aware of this but you can do a special approval for a condominium unit called an FHA spot approval which can be done in as little as 2 to 3 weeks so for example if you’re FHA pre-approved and you’re looking at a condominium project, and the condominium project is not presently HUD approved your lender can get a special spot approval provided the homeowners association is responsive in providing paperwork and requested documentation. Yes, it means the lender has to do a little bit more work, and yes your real estate agent might need to do a little bit more work on your behalf, but it absolutely is attainable.
FHA loans can go down to an ultra-low credit score. Most mortgage companies in America day will not do an FHA loan for a family with less than a 620 credit score some companies out there will go to 600, others to 580, and others believe it or not down to 500 note if your credit score is under 580 generally you’re going to need at least a 10% down payment as most mortgage companies while they can do it also have a certain degree of risk they take in granting a loan when the applicant’s credit score is on the lower side.
FHA loans will allow you to get the down payment and the gift money 100% in full from a donor. Yes, you are hearing that correctly you can buy a home with an FHA-insured loan and have the down payment and all the closing costs 100% gifted to you so you’re putting in none of your own money. It has to be from a blood relative or cross or a personal familial relationship such as a fiancé for example.
FHA loans allow for out-of-the-box situations in paying off debt to qualify, and manipulating credit scores can help bridge the gap between where you are right now and where you desire to go.
If you would like to learn more about how FHA loans work or want to inquire about getting pre-approved to buy a home, please begin by getting an easy, quick rate quote.