FHA Loan Programs

• Low Down Payment: FHA allows borrowers to purchase a home with a down payment as low as 3.5%. In addition, gifts for down payment and closing costs are permitted.
  
• Low Closing Costs: Regulated by the Department of Housing and Urban Development (HUD). Seller paid costs can be negotiated up to 6% of the purchase price.
  
• Relaxed Regulations: Borrowers can qualify for a loan two years after bankruptcy and three years after foreclosure. Job requirements are less stringent.
  
• Higher Qualifying Debt Ratio: The borrower’s monthly house payment should not exceed 31% of their monthly income and total expenses.
  
• Low Credit Score: Borrowers with low credit scores may still qualify for a FHA mortgage.
  
• No Prepayment Fees: Homeowners are able to refinance their mortgage loans to one with a lower interest rate without paying a penalty.
  
• Non-occupying co-borrowers are allowed: In this case, the occupying borrower does not need to have income or employment.

• Loan Credit: Two lines of credit are required to apply for a FHA mortgage. If a borrower lacks sufficient credit on their credit report, alternative forms may be substituted (utility payments, rental payments, etc.). Nontraditional credit is accepted if the borrower has little or no prior credit history. Bankruptcy requires a minimum two-year lapse period and foreclosures require a minimum three-year lapse period. In both cases the borrower must have reestablished good credit and demonstrated financial management.
  
• Loan Income: The borrower’s income must meet or exceed the minimum debt-to-income (DTI) ratio, which is currently set to 31/43. The borrower’s monthly mortgage payments (including principal and interest, taxes, and insurance) should not exceed 31% of their monthly income, and their total expenses (house payment, car payment, personal loans, credit cards, etc.) should not exceed 43% of their total income.
  
• Loan Property: The FHA requires a property appraisal to insure that there are no safety or health issues and to assess the value of the property. Appraisers inspect the property for any deficiencies or adverse conditions. The FHA now only requires repairs to the conditions that are above normal wear-and-tear.

In order to be eligible for a FHA mortgage, borrowers must meet the following criteria:

• Have a valid Social Security Number
  
• Be a legal resident of the United States
  
• Be of legal age to sign a mortgage

Eligibility for an FHA mortgage is also determined by the borrower’s credit history, income, debt ratio, and down payment. Borrowers are required to have at least two years of employment in a stable profession and a steady or increasing income within the past two years.

FHA mortgages can be fixed-rate mortgages or adjustable-rate mortgages. 10, 15, 20, and 30 year terms are available.

The FHA jumbo loan program is part of a legislation passed which was created by HUD. Any mortgage loan that exceeds $417,000 is considered jumbo. This program allows borrowers to finance up to $729,000 with only 3.5% down (based on county loan limits). The limits for FHA jumbo loan limits are set by the Federal Housing Finance Agency. The limit can increase, but it will not be lowered.

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