What is an FHA Loan?
The Federal Housing Administration (FHA) is a self-funded government agency that insures the loan extended and provided by an FHA Loan approved lender, against future default by the borrower. The FHA does not originate the loan, they insure the loan in the form of a Mortgage Insurance Premium (MIP) via upfront and monthly fees, respectively.
There are different types of FHA loans, the 203b home loan being the most commonly used and understood FHA mortgage loan program. This type of loan is for people looking to buy a single-family residence, either new or existing, one-to-four family home, in both urban and rural areas. The most common misconception about FHA 203b loans is it was designed for First Time Home Buyers. While it is true that most first time home buyers prefer to get an FHA loan, FHA loans historically allowed lower income buyers to purchase a home that they would not otherwise be able to afford and qualify for. FHA 203b Loans can be used to either purchase a home or refinance an existing mortgage.
Benefits of FHA 203b HomeLoan:
The FHA 203b loans are beneficial for homebuyers who don’t have a perfect credit profile. It also helps people looking to purchase, but have a limited amount of money to put down on a house. Some of the features are:
- Minimum down payment of 3.5% of the purchase price;
- Middle FICO score as low as 580;
- A seller can contribute up to six percent (6%) towards the buyers closing costs and pre-paid items;
- A non-traditional form of trade lines or alternate trade lines can be used for those with limited or no credit;
- Lower interest rate compared to conventional loans;
- Property being purchased must be a primary residence;
- Two (2) years of continuous employment. Income should be consistent or increasing and not be declining;
- No late payments in the last 12 months;
- The maximum debt-to-income ratio cannot exceed 55% (lower if your middle FICO score is under 620).
FHA 203b Home Loan Requirements:
When applying for an FHA 203b home loan, a borrower must check to see the FHA loan qualifications. A few of the basic things required are: Core Lending is designated as a “Full Eagle” FHA approved lender. We originate, process, close and fund our own loans as set forth, following a strict guideline set by the Housing and Urban Development (HUD). When most lenders use a middle FICO score of 640 to qualify borrowers for an FHA loan, Core Lending extends a mortgage loan to borrowers with middle FICO scores as low as 580.
Mortgage Insurance Premium
The Federal Housing Administration (FHA) insures the loan against future default. This is done so by charging an upfront Mortgage Insurance Premium (MIP) of 1.75% and an annual percentage of 1.35% (computed on an equal monthly payment) for loans with a loan-to-value of 95% or greater for a 30-year term. Mortgage Insurance, therefore, is an insurance policy that protects the lenders against any loss in the event that the borrower defaults in the future. This is required on all FHA loans in reciprocation to a low rate offered for FHA insured mortgages.
Core Lending – Austin has a full team of FHA Loan Specialists that can answer any and all of your questions regarding qualifications, requirements, approval and how to obtain an FHA 203b loan. Call us at 877-561-3064 for free one-on-one consultation or feel free to utilize any of the resources on this website for more information.