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Low down payments
- Low closing costs
- Easy credit qualifying
Easier to Qualify for – because they’re backed by the federal government lenders are more likely to give you the kind of loan that you need.
Low Down Payment – FHA insured mortgages only require a 3.5% down-payment which makes it easier for people to own homes. Additionally the 3.5% can come in the form of gifts, unlike many other loan programs.
Lower Credit Borrowers Qualify – because FHA insured loans are backed by the government those with a poor credit history have an easier time getting this kind of loan. In recent time a 620 score is required to obtain an FHA loan.
Better Interest Rates – with the backing of the government these loans typically have a better interest rate than most traditional mortgage loans.
Better Home Stability – the FHA has programs designed to help homeowners keep their homes during hard times. They will work with you to help your home from falling into foreclosure. Always try to work out problems with your lender before the situation becomes dire.
FHA Loans. First-time homebuyers can benefit from an FHA loan. Basically, FHA makes purchasing a home much easier by allowing a lower down payment as well as providing more lenient underwriting guidelines. Here are a few of the basics:
- Only a 3.5% down payment is required
- Gift funds from a family member are an acceptable source of down payment and closing costs
- Less stringent underwriting criteria
- Lower monthly mortgage insurance premiums
- Rates are comparable to a Conventional loan
- Maximum loan amounts vary by state and county - Maricopa = $346,250
FHA Adjustable Rate Mortgage Loans are loans in which the interest rate will possibly change at some future date. The FHA Adjustable Rate (ARM) program has the standard 1 Year Arm and also the popular 3 Year and 5 Year ARM Programs. FHA ARM's carry low Margins.
The FHA Adjustable Rate Mortgage(ARM), 1 year ARM loan is one of the best adjustable rate mortgages currently available. It is available 1-4 unit homes, as well as condominiums, townhomes, and PUDs.
One benefit of the FHA Adjustable Rate 1 Year ARM is that it does not offer an initial low "teaser" rate like most other adjustable rate mortgages, therefore it will normally start at a slightly higher rate than most other adjustable loans. Thus you will most likely not have a large first adjustment.
The yearly interest can rise or decrease no more than 1% per year vs. 2% for a conventional loan.
The lifetime cap of the FHA adjustable rate mortgage is no more than 5% over the initial start rate vs. 6% for a conventional loan.
Therefore, a FHA arm can take 5 years before reaching its maximum rate vs. a conventional loan can cap in only 3 years.
FHA's adjustable rate mortgage is based on the economic indicator index called the 1-Yr. T-Bill. You can find the current T-Bill rate on many websites like Bloomberg or in the Wall Street Journal. The 1-Yr T-Bill is the most conservative index you could ask for. Currently around less than 1%.
Index + Margin = Fully Indexed Rate
(current 1 Yr. T-Bill Rate) + (percentage, usually 2.75%) = Interest Rate
Example:
Index = 0.68% (as of April 2009) + Margin of 2.25% = Fully Indexed Rate = 3.00% (rounded up to nearest 1/8th)
3% would be the rate for the following 12 months and adjust again every 12 months thereafter.
Other benefits of the fha arm (adjustable rate mortgage) is that you can "streamline refinance" to a FHA fixed rate mortgage at anytime.
Borrowers must qualify for one-year ARMs using the mortgage payment based upon the contract or initial interest rate plus 1 percentage point (i.e., the anticipated maximum second-year interest rate) if the loan-to-value ratio is 95 percent or greater.
What is the purpose of this program?
To provide mortgage insurance for a person to purchase or refinance a principal residence. The mortgage loan is funded by a lending institution, such as a mortgage company, bank, savings and loan association and the mortgage is insured by HUD.
What are the eligibility requirements?
- The borrower must meet standard FHA credit qualifications.
- The borrower is eligible for approximately 96.5% financing. The borrower is able to finance the upfront mortgage insurance premium into the mortgage. The borrower will also be responsible for paying an annual premium.
- Eligible properties are one-to-four unit structures.
Down payment requirements can be low. In contrast to conventional mortgage products, which frequently require down payments of 5 percent or more of the purchase price of the home, single-family mortgages insured by FHA under Section 203(b) make it possible to reduce down payments to as little as 3.5 percent. This is because FHA insurance allows borrowers to finance approximately 96.5 percent of the value of their home purchase through their mortgage in some cases.
Borrowers can make the down payment with a gift. The down payment can be 100 percent gift funds from a family member or an approved organization. This is one of the key benefits to the FHA program.
Verification of the source of gift money is required. It is necessary that the gift funds be deposited in the borrower’s bank or savings account, or in an escrow account, prior to underwriting approval. Proof of deposit is required.
Gift donors are restricted primarily to a relative of the borrower. They can also be certain organizations, such as a labor union or a nonprofit organization.
FHA Streamline Refinances
FHA has permitted streamline refinances on insured mortgages since the early 1980s. “Streamline” refers only to the amount of documentation and underwriting that needs to be performed by the mortgage company and does not mean that there are no costs involved in the transaction.
The basic requirements of a streamline refinance are:
- The mortgage to be refinanced must already be FHA-insured.
- The mortgage to be refinanced should be current (not delinquent).
- The refinance is to result in a lowering of the borrower’s monthly principal and interest payments.
- No cash may be taken out on mortgages refinanced using the streamline refinance process.
1.) FHA Loans Explained
There is a common misperception among consumers that deserving homebuyers and existing homeowners can no longer secure financing. Nothing is further from the truth!
Yes, today's credit market requires more-stringent lending standards and tightened credit-quality guidelines than in years past. However, there continue to be numerous home loan programs to assist today's homeowners and homebuyers.
What are FHA loans? FHA loans are a type of mortgage loan insured by the Federal Housing Administration. The federal government initially created FHA loan programs to encourage home ownership. The FHA does not supply the loan; it simply insures the loan to limit the risk to the lender.
An FHA insured mortgage can be used to purchase or refinance a single family home, a multi-family home, or a condominium unit. FHA loans allow borrowers without traditional credit histories or income to qualify for a home loan at a competitive rate. FHA loans also have unique features that ease qualifications for first-time buyers to obtain a home loan with a combination of low down payment options and flexible lending guidelines.
2.) Benefits of an FHA Home Loan
- Flexible qualification guidelines that help make qualifying easier than with other loan programs
- First time homebuyers are eligible
- Low down payment - FHA loans allow for a down payment as low as 3.5%
- New home purchase loans, refinance loans and some debt consolidation refinance loans are eligible up to 85% of value.
- If you encounter financial difficulties after buying your home, FHA has programs to help you keep your home and avoid foreclosure
- Your mortgage is insured by FHA, eliminating the need for Private Mortgage Insurance (PMI)
3.) Eligibility Requirements for FHA Home Loans
- FHA home loans are available for first-time buyers and for borrowers that have not used an FHA home loan in the past 3 years.
- Requires using an approved FHA lender for FHA-insured mortgages
- Borrower must have a valid social security number; lawful residency in the United States and be of legal age to sign on a mortgage in state of residence
- No maximum income limits in order to qualify for an FHA loan
- 620 minimum credit score requirements
4.) About the Federal Housing Administration (FHA)
The FHA helps increase opportunities for home ownership by insuring residential mortgage loans written by private mortgage lenders. The FHA sets guidelines for loan financing and construction, but it does not act as a lender itself, nor does it plan or construct housing. The FHA is an agency of the U.S Department of Housing and Urban Development (HUD).
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