FHA LOANS

The FHA, or Federal Housing Administration, provides insurance on mortgage loans made by FHA-approved lenders. FHA insures these loans on a single family and multi-family homes in the United States and its territories. As with VA Loans, the purpose is to minimize the amount of money needed as a down payment.

FHA requirements include mortgage insurance primarily for borrowers making a down payment that is less than 20 percent. Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages.

Down Payment

Down payment requirements are as low as 3.5% of the purchase price of the home. It is important to remember that amount of your monthly payment is related to the amount you make as a down payment. The more you put down, the stronger position you present to your mortgage lender. You may also qualify for incentives offered by the lender. In addition, your FHA Mortgage Insurance Premium, monthly PMI, Monthly interest, and Monthly principle are reflective of your down payment. Bottom line…make as large a down payment as you can.

Qualifying

Before you start the FHA loan process, be prepared to provide some information to your loan officer. Have it ready now to save time later.

• Address to your place of residence (past two years)
• Social Security numbers
• Names and location of your employers (past two years)
• Gross monthly salary at your current job(s)
• Pertinent information for all checking and savings accounts
• Pertinent information for all open loans
• Complete information for other real estate you own
• Approximate value of all personal property
• Certificate of Eligibility and DD-214 (for veterans only)
• Current check stubs and your W-2 forms (past two years)
• Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals

In addition, you will need to pay for a credit report and appraisal of the property.

All mortgage lenders will be looking at your credit scores, credit history, and current debt to income ratio. These factors will determine if you can get a mortgage loan and how much you are able to borrow.

FHA Fees

The FHA backs their loans against borrower defaults on an FHA loan. To fund this obligation, the FHA charges borrowers a fee upfront, This know as mortgage insurance premium (MIP) and is  1% of the mortgage loan. You will also pay a modest ongoing fee with each monthly payment, commonly called PMI.

Private Mortgage Insurance (PMI)

You will be required to purchase PMI until you have reached 20% equity in your home. During the loan process, your mortgage lender will provide you with the details of your PMI. Remember, this is paid monthly as part of your mortgage payment.