FHA Loan FAQ
By now, you’ve probably already visited our FHA Loans information page to get a general idea of what to expect when it comes to this borrower-friendly federally-funded loan program. As with any monetary program, however, there are a lot of rules and specifics to discover. For this reason, we’ve decided to include a list of the questions we hear the most concerning FHA loans:
Who does the FHA loan benefit the most?
Generally speaking, FHA loans are meant to aid people with less-than-perfect credit, such as young people with shallow credit history or those who have had past credit issues (low FICO scores, high debt-to-income ratios, etc.). It can also be beneficial for those who have not had time to save for a significant down payment.
How does an FHA loan make the process easier?
Because it is federally-guaranteed (backed by the Federal Housing Administration), the FHA loan provides lenders with the security necessary to take risks on applicants who would normally be passed over by underwriters for any number of reasons. For the same reason, they also make it easier for first-time buyers to take on a home loan because the down payment requirement is much lower (3.5%) than that with a conventional loan (usually 10-20%).
Can I prequalify?
Yes. Your chances for approval will increase significantly, however, if you can prove reliability and job security through at least two years of employment in the same position and with a pay rate that has remained consistent if not increased.
How do I apply for an FHA loan?
The Federal Housing Administration does not offer these loans directly, but rather guarantees them. To apply, you go through an FHA approved lender, which gives you the opportunity to view multiple options and seek out the best rates.
I am already paying homeowners’ insurance—why do I need to pay mortgage insurance as well?
While your homeowners’ insurance protects your home and possessions, mortgage insurance protects the lender against potential payment delinquency or default. In short, mortgage insurance is what makes it possible for banks to lend to a credit-challenged borrower without assuming the inherent risk.
What are the down payment requirements?
For FHA loans, the minimum down payment is 3.5%.
Can I be approved for an FHA loan if I’ve had serious payment issues in the past?
Yes. In the case of a Chapter 7 bankruptcy, you will typically have to wait for a period of at least two years from the date of the discharge (not the date of the filing). The wait period for a Chapter 13 is one year, while the wait for a foreclosure or short sale is three years. In each case, you will also want to have established at least twelve months of pristine payment practices.
Can I be approved if I am still paying off my student loans?
Yes. The main concern for the underwriter in this case is your debt-to-income ratio, or the amount of money you owe in bills each month versus your guaranteed monthly income. You will want this ratio to be under 45%, and you will also need to make sure that your student loan payments are up to date at the time of application.
Does the FHA allow me to borrow any amount?
No. While there are limits on FHA loans, they vary significantly depending on your location. As of January 2017, the ceiling was set at $636,150, while the floor was raised to $275,665. Additionally, you’ll want to remember that an underwriter is not likely to approve any loan including a DTI ratio of greater than 45%.
Can I borrow to make improvements on my home?
Yes! Otherwise known as the streamlined 203K loan, this option allows you to borrow up to $35,000 (depending on the projected value of the home) to make non-structural repairs.
Can I refinance with an FHA loan?
Yes! There are actually excellent refinancing features available through the FHA, including streamlined financing and cash out options.
Contact a representative today if you have more detailed questions or want to discuss your FHA mortgage and refinancing options with a certified and dedicated professional!