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FHA Loans
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The
Federal Housing Administration (FHA) is a federal agency within
the U.S Department of Housing and Urban Development (HUD).
FHA's primary objective is to assist in providing housing
opportunities for low to moderate income families. FHA has both single
family (1-4 unit homes) and multi-family (5 or more units) mortgage
lending programs. The agency does not generally provide the funds for
the mortgages, but rather insures home mortgage loans made by private
industry lenders such as mortgage bankers, savings and loans and
banks.
Qualifying
for a FHA loan is like applying for a regular loan
To be considered for a low down payment loan, you generally need to
have:
-
sufficient income
to support the monthly mortgage payment
-
enough cash to
cover the down payment
-
sufficient cash to
cover normal closing costs and related expenses (explained below)
-
a good credit
background that indicates your payment history or "willingness
to pay"
-
sufficient
appraisal value, which shows the house is at least equal to the
purchase price
-
a cash reserve
equivalent to two monthly mortgage payments (P.I.T.I. described
below)
A credit report will be obtained on the borrower and any lates,
collections, judgments, foreclosures, bankruptcies, etc. must have a
justifiable explanation in writing by the borrower.
FHA
Loan Qualifications
If you do not met the qualifying guidelines, FHA allows a parent or
relative to co-mortgage. When budgeting to buy a home, it is important to allow enough money
for additional expenses such as maintenance and insurance costs. If
you are purchasing an existing home, gather information such as
utility cost averages and maintenance costs from previous owners or
tenants to help you better prepare for homeownership.
Homeowner's
insurance or
property insurance is another cost you will have to consider. The
lending institution holding the mortgage will require insurance in an
amount sufficient to cover the loan. However, to protect the full
value of your investment, you might want to consider purchasing
insurance that provides the full replacement cost if the home is
destroyed. Some insurance only provides a fixed dollar amount which
may be insufficient to rebuild a badly damaged house.
By its very nature, FHA loans provide home affordability, because it
allows families to purchase homes with less cash on hand. FHA plays a
central role in helping low- and moderate-income families become
homeowners.
What
financial documentation will be required?
The loan approval process generally begins with a lender reviewing
your income, assets and credit history. You will need to supply
information to verify your income and assets used to buy a home.
It is best to obtain a pre-approval before house hunting to determine
in advance what price range you can realistically afford and the
mortgage amount for which they can qualify.
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