FHA loans have taken over where the sub-prime loans left off. FHA loans have many good things going for it and right now is out doing all other loan products available and for good reasons.
What is a FHA Loan?
FHA stands for Federal Housing Administration and was formed by HUD. FHA does not actually lend the money but only lenders that are approved by FHA does. FHA insures the loan or other words guarantees the loan in case of default by the borrower.
Here are 7 reasons why FHA is the mortgage of choice:
- Have no prepayment penalties
- There are no income limits (except Utah Housing)
- You don’t have to be a first time homebuyer
- On purchases, allow up to 6% seller contribution
- FHA loans are assumable
- Only 3.5% down payment required to purchase
- Can qualify with a 640 credit score
More about the 3.5% down
The down payment can come from several resources. A relative can gift the down payment to you and it must be in a form of a gift.
You can borrow the down payment, but the loan must be a secured loan. The secured loan can come from your 401k or the fund could come from putting your car title up for a calitoral loan. And no, credit cards will not work because they are considered unsecured.
The down payment can come from a sale proceeds with supporting documents. This can be from the sale of personal property, real estate, etc.
Closing costs can not be used to help meet the 3.5% down payment requirement.
640 Credit Score
You can get a fantastic mortgage rate with a 640 credit score. Some lenders will finance the borrower with as low as a 580 credit score. But with credit score below 640, the borrower will be hit with a higher interest rate and will be required to have a larger down payment. A borrower with a 580 could be required to come in with a 10% down.
Employment Qualifactions
The borrower must have a two year work history. You don’t necessarily have to be in the same field but just show that you have had a steady job. Believe it or not but if you are a college student, this can count has a steady job.
In order to use a second job income, the borrower must verify they have worked both a full time job and a part time job, consecutively, for the last two years, and the income has the probability to continue.
Non-employment sources of income, such as child support, social security, etc., can be used as long as it will continue for no less than three years.
Acceptable Properties
Any single family residence of 1 to 4 unit homes. So a fourplex and duplex property can qualify for FHA funding.
Not all condos will qualify for FHA. The complex itself must be approved by HUD in order to have FHA backed mortgage on the property.
The property must pass an inspection in order to get a green light from FHA.
Just to name a few inspection items that can prevent the loan going through are….faulty or defective electrical, plumbing or heating. Evidence of possible structural failures. Hazardous material on the site. Showing of bare wood on exterior of home. Missing hand rails around stairways. Cosmetic is usually is not an issue, like carpet, paint, etc.
As you can see there are a lot of advantanges to a FHA mortgage. From not having perfect credit to being able to purchase an income producing propety like a fourplex.
Todd Rodocker specializes with first time home buyers, seasoned buyers and investors. He can be contacted at toddrodocker@kw.com, cell 801-694-0903 or by visiting his web sites www.utahrealestatestore.com, www.SearchUtahFineHomes.com
