Considering an FHA Loan? Here are the Basic Points

Lending standards for conventional mortgages, in recent years, have become stricter and tighter. In response, FHA loans, with somewhat looser requirements, are growing in popularity. A borrower looking for financing with McCue Mortgage could qualify for an FHA loan, and if you are considering this program, these are the basic points to keep in mind.

FHA mortgages are insured by the government, allowing lenders to finance those with fair or poor credit. Government backing further reduces the lender’s loss risks, should the borrower default, and opens up financing to more individuals.

FHA mortgages are the some of the easiest mortgages for which borrowers can qualify. Financing is available to those with less-than-perfect credit, and the loan typically has a lower down payment and, with time, is assumable, if the homeowner decides to sell the property. The loans, as well, are options for both purchasing and refinancing.

While FHA loans are divided into several types, which we will touch on next week, all have general qualifications, including the following:
• A steady, two-year minimum employment history
• Valid identification: a social security number and being a U.S. resident who’s of legal age to sign a mortgage
• A 3.5 percent down payment (percentage may be higher for borrowers with lower credit)
• An appraisal of the property done by an FHA-approved appraiser
• A minimum credit score of 500

For the loan, the borrower must consider these further points. For the down payment, the amount can be from a gift. The monthly mortgage payment, as well, needs to be less than 31 percent of the borrower’s total monthly income. All debt, including mortgage, credit card, and other payments, must not exceed 43 percent of the borrower’s monthly income. Borrowers, additionally, need to be two years out of bankruptcy and three years past foreclosure, with good credit.

Borrowers, as well, need to be aware of mortgage insurance regarding FHA loans. This mortgage type requires two types of insurance premiums. For FHA loans, this includes an upfront insurance premium, which is paid in full or financed into the total mortgage amount, and a monthly payment, or annual MIP, that is one percent of the total loan and is based on the length and loan-to-value ratio.