Why Understanding FHA Loans Matters
When you buy a home, refinance an existing mortgage, or want to take equity out of your current home you have options. There are several types of mortgage options, and one of them is called an FHA. When you understand FHA you can decide if it is right for you so you make the best decision to satisfy your needs and meet your specific circumstances.
We at EPM believe that if our clients understand enough about mortgages, home buying, and refinancing, they will can make the most informed decisions.
What is an FHA Loan?
Basically, it is a loan that the FHA (Federal Housing Administration) insures. Like many lenders, we at Equity Prime Mortgage lend funds for mortgages. The FHA will insure the loan in exchange for you taking out a mortgage insurance policy.
A regular FHA loan can be for 15 or 30 years. You can qualify with a credit score of at least 500. If your score is 580 or above, you can borrow up to 96.5% of the home’s appraised value. If your credit score (FICO score) is below 580, you may still qualify but you will have to put down a higher deposit. The government sets an upper limit as to how much you can borrow. This amount varies by area and is adjusted every year.
If you want to borrow to pay for renovations or other work on your home or you want to release equity for personal reasons, FHA may insure the program, thus providing you with several options.
Different states have their own borrowing limits for FHA, so talking with us about where the home is enables us to advise you on how to move forward.
What Types of FHA Loan Are There?
- The most popular FHA loan is to buy a home. The home must be your main residence, not a vacation home or rental property.
- FHA 203(k) loans enable you to buy a home and also borrow money to renovate it, all as a single mortgage. The Limited 203(k) loan is for renovations costing less than $35,000. The Standard 203(k) is for renovations which cost more than $35,000.
- The FHA Energy Efficient Mortgage (EEM) enables buyers or homeowners to buy or remodel homes with energy-efficient updates without having to increase their down payment.
- The FHA Section 245(a) loan is a graduated payment mortgage and is for owners whose income should increase in the future, so you start with a lower monthly payment and increase it over time. There are five different payment plans available.
- The Home Equity Conversion mortgage (HECM) enables homeowners who are aged at least 62 to release equity in their home for personal use.
What is the FHA?
The FHA is a part of the Department of Housing and Urban Development (HUD) and it exists to both underwrite and insure mortgage loans issued by companies like us, and to set standards for types of construction.
Who Can Get an FHA Loan?
The FHA has a set of standards borrowers must meet and lenders must work to. If you meet each of these, then you should qualify. You must have:
- A valid Social Security Number, be legally able to sign for a mortgage, and be a lawful resident. We operate in 49 states, and some states have different requirements for who can sign a mortgage, so it pays to discuss specifics with us, so we can advise you accordingly.
- A steady history of employment or have been with the same employer for two years.
- A credit score of at least 580 to qualify for a 3.5% down payment. If your credit score is 500 – 579, you must have a 10% down payment. We can get your credit score for you and then discuss your options so you know how best to proceed.
- Been out of bankruptcy for at least one year but preferably two years. If the bankruptcy was beyond your control and you have a good track record for managing your money, you may be able to take advantage of the one year rule.
- Been out of foreclosure for three years (or less if there were extenuating circumstances.) Again, discuss details with us so we can advise you properly.
- Have an income that is enough to cover costs such as mortgage payments, property taxes, mortgage insurance, credit card payments, etc. with enough left over for other living expenses. There are standard calculations to determine the size of the loan, so let us work it out for you.
And, finally, the home must meet minimum standards for safety and functionality. The FHA-approved appraiser determines that the home does or does not meet them. If not, either the seller must bring the home up to standard or you must pay for the required repairs.
Why Should I Apply for an FHA Loan?
- They are easier to qualify for.
- You can often borrow more, based on your income, than with a conventional mortgage.
- An FHA loan requires less upfront cash than a conventional loan.
- You can roll other costs into your loan instead of paying upfront.
How Do I Apply for an FHA Loan?
As we said, EPM operates in 49 different states. The best way to apply is to click this link and complete the basic information or open the chat line and speak with one of our experts. In this article we have explained all the basics of FHA loans but nothing beats talking with someone and having all your questions answered. We look forward to hearing from you.