Posts Tagged FHA loans
Lenient FHA Loan Guidelines Make Now a Great Time to Apply
Posted by Victoria Belle-Miller in Finances on 02/21/2010
FHA loans are a great option for first time homebuyers on the house hunt, as well as current homeowners who are looking to refinance their current mortgages. These loans offer low down payments, as well as low interest rates, which helps keep monthly mortgage payments low. This type of financing, which is insured by the Federal Housing Administration (FHA), also has more lenient credit and income qualifications than most other home loans. Even potential borrowers who have less-than-average credit scores may still be able to qualify.
Loan Eligibility
It is typically easier to qualify for this type of financing, compared with other types of home loans. While the FHA does have lenient credit score and income requirements, most lenders require that applicants have a credit score of at least 620 to qualify. The FHA also requires that applicants have a clean credit history of at least twelve months, meaning they have had no delinquent mortgage payments during the twelve months preceding their application. The house an applicant wants to finance must be his or her primary residence, which means they plan to live there at least six months out of the year.
Loan Requirements
This type of financing requires that the borrower make a down payment on the home being purchased, as well as monthly mortgage payments. The down payment can be as low as 3.5%, which is much lower than down payments on most other home loans. Applicants will also have to pay an upfront mortgage insurance premium on the loan, which is currently equal to 1.75% of the loan amount.
Before the loan can be closed, an appraisal will need to be done on the home to ensure that the home meets all of the minimum safety standards that the FHA requires and to document the value of the property. Borrowers also will be required to escrow their homeowner’s insurance and property taxes, which ensures that everything is paid up to at least one year.
There is interest on the loan, but it is typically lower than conventional loan rates. And borrowers can opt for fixed interest rates so that their rates remain unchanged over the life of their loans and their monthly mortgage payments are consistent. This option would be especially good for borrowers who have had credit issues in the past.
Loan Refinance
For a current homeowner, refinancing with an FHA loan could lower his or her interest rate, which could also lower the monthly mortgage payment. Refinancing also gives homeowners the option of changing the terms of their loans. They can extend the length of their loans or change from adjustable rates to fixed rates, which could save them thousands of dollars in the long run. With the cash-back refinancing option, homeowners can take out a loan for a higher amount than the amount needed to pay off their current mortgage and use the rest to pay off large bills or cover other expenses. There are no restrictions on how a homeowner can use the cash.
Apply Now Before Requirements Change!
This type of financing offers several benefits and has relaxed guidelines. A borrower who does not have a lot of money for a large down payment can still become a homeowner with this type of loan. Current homeowners can save money every month by refinancing and getting lower interest rates, as well as receive cash back for other financial needs.
The FHA will be changing their requirements in the next few months, so now is a good time to speak with a FHA loan specialist to determine whether this type of financing is right for you!
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.
FHA Loans Can Still Provide Many Benefits
Posted by Anne Johnson in Finances on 02/08/2010
Many prospective homeowners and mortgage professionals have heard that the regulations for FHA loans are changing. After the sub-prime mortgage industry died down, the FHA home loan program became the scapegoat for any and all problems associated with the housing market. Critics believe that the FHA loan program is too lenient on its credit requirements. Because of this constant scrutiny and other outside criticisms, the FHA has decided to make some significant changes to its qualifying requirements for its home loan program.
In past years, the FHA home loan program did not require a specific credit score in order to qualify for their loans. Although most lenders required at least a 620, many critics of the FHA’s program believe that the lack of a credit score requirement has led to the large number of defaults after the housing market crash. In order to prevent this from happening in the future, the FHA’s new rules state that a borrower must have at least a 580 credit score in order to take advantage of their 3.5% down payment program. If an applicant has a credit score below 580, they must put at least 10% down on a new home.
A protection that has always existed on FHA loans is the required mortgage insurance. Mortgage insurance provides benefits for both the homeowner and the lender. This type of insurance helps the lender because it ensures that they will be paid in case of borrower default. Because the lender knows that the loan is insured by the federal government, they are more likely to offer favorable terms to the borrower.
A new change to the FHA’s mortgage insurance raises the up front premium by half a percent from 1.75% to 2.25% of the loan amount. This effort is a way to ensure the sustainability of the FHA loan program. The FHA is currently trying to obtain Congressional approval to increase the annual premium. If this approval is granted, the FHA would reduce the amount by which they increased the up front premium. Some FHA officials have discussed making the premiums risk based, which would mean that the premiums would vary depending on credit score and history.
The last protection which the Federal Housing Administration has decided to implement with these changes is a reduction in allowable seller concessions. When these new regulations go into effect, the seller will only be able to provide 3%, whereas before, the seller could provide up to 6% of the purchase price. These regulations are all set to take effect in April, 2010 and are an effort to increase the quality of FHA loans.
Only time will tell if these regulations will have the desired effect and increase the quality of the FHA home loans issued. Many homeowners are in agreement with the changes because they want the housing market to bounce back quickly and believe that the best way for this change to occur is to require more of prospective homebuyers. Other homeowners believe that, while encouraging people to improve their credit is beneficial, restricting home loan applicants does more to hinder the housing market rather than stimulate it. Hopefully, these new changes will have a positive effect and help the housing market grow and prosper.
As a former psychology major, finding solutions to resolve problems has always been a subject of interest to me. I hope that my writing will give people the confidence to make important decisions about FHA loans. In addition to writing, I love to read, knit, spend time with friends and family, and watch the Missouri Tigers and Green Bay Packers!
Get Low Rates With an FHA Loan
Posted by Victoria Belle-Miller in Finances on 01/20/2010
Overview
FHA loans are a great option for individuals who are either purchasing a new home or refinancing their current home. Because these loans are insured by the Federal Housing Administration (FHA), borrower s have access to lower interest rates than may be available to them on other types of home loans and can feel secure knowing their loan terms will never change.
FHA loans have a low down payment requirement (3.5% of the purchase price) and they allow homeowners to finance a large percentage of their home’s value, allowing them to either receive more cash back from a refinance or save money on a down payment for a purchase.
The FHA does not require high credit scores, so it is easier for individuals to qualify for this type of loan than most others.
Competitive Interest Rates, Even for Less-Than-Perfect Credit
Because these loans are insured by the FHA, they are considered by lenders to be a reasonably secure investment. The insurance reimburses lenders for any outstanding balance in the event that the borrower defaults. This makes FHA lenders more likely to offer their customers lower interest rates.
Although mortgage rates constantly fluctuate and depend upon current mortgage market conditions, they are usually low compared with other types of loans. If borrowers choose a fixed rate for their FHA mortgage, that interest rate will never change over the life of the loan.
With a fixed rate, the homeowner will always know what to expect on their monthly payments and will not have to worry about rates or their monthly payment increasing.
Homeowners who have an FHA loan can lower their interest rate any time the market improves with a streamline refinance, which requires less documentation and processing than other refinance transactions.
When borrowers refinance, they can lower both their rate and monthly payment. If rates have decreased since the original loan was taken out, even homeowners with a fixed rate can receive a lower rate with the streamline refinance. Lowering the rate on a home loan frequently results in not just long term savings, but lower monthly payments, as well.
Eligibility Requirements: Credit and Type of Ownership
To be eligible for an FHA home loan, the borrower must be financing the home that is his or her primary residence. The FHA does not require that borrowers have high credit scores, but most lenders want borrowers to have a credit score of at least 620. In addition, there can be no delinquent mortgage payment reported within the 12 months preceding the loan application.
If a potential homeowner has not built up a sufficient credit history, he or she can still qualify for an FHA loan. These applicants will be asked to provide certain types of alternate documentation in order to prove their ability to consistently make payments.
While not every financial product is right for everyone, FHA loans have many benefits that make them the ideal solution to a variety of home financing needs. Homeowners who feel they may be interested in this type of financing should speak with an FHA loan specialist to find out more about their options.
Victoria Belle-Miller is the newest member of the FHAMortgageBank.com writing staff. Her background in journalistic writing and ability to evaluate the issues that Americans face in daily life make her a strong addition to the FHA loans team and a valuable source of sound mortgage advice.