The Federal Housing Administration (FHA) is a mortgage funding program that helps those just starting out who would not normally qualify for a property loan from a bank or other lending company, to be able to buy a home. There are certain guidelines you must adhere to in order to be approved for an FHA loan. FHA has lower standards than loans that are granted by conventional lending agencies. These government loans are not direct loans from the government, but they are guaranteed or backed by the Federal Government. New home buyers can easily qualify for a mortgage due to the way these financing arrangements are structured. One FHA loan requirement is the ability to prove that the home buyer has a good credit score and has made timely payments on their credit accounts. Also, there are several income types, such as Social Security, alimony, and unemployment benefits, that qualify as income for FHA loan requirements. Another good benefit is that only 3% of the cost of the home is needed as a down payment, a home buyer can get his or her home mortgage with a government guarantee. “FHA loans are an excellent vehicle for getting first time home buyers a leg up in home ownership,” says Shawn Kormondy, Real Estate Adviser with Reis Group, Inc. at Keller Williams Realty in Beverly Hills.
Advantages of FHA loan financing
- Lower required down payment
- FHA loans are assumable with a qualified borrower
- Higher qualifying ratios of 29% for housing and 41% for total indebtedness on existing construction; 31% for housing and 43% for total indebtedness on new construction
- Flexible underwriting requirements
- Gift funds for down payment and closing costs are allowed
- Up-front Mortgage Insurance Premium can be financed
- Seller can contribute up to 6% of purchase price toward closing cost and discount points
- Charges on conventional loans such as tax service fees, underwriting fees, copy & courier fees are not allowed to be charged to the buyer with FHA loans
- The FHA ARM has the best features on the market with a 1% annual interest rate cap and a 5% lifetime cap.
In addition, there are new requirements on condominiums as of February 1, 2010. the FHA now requires that an entire condominium project be FHA approved, discontinuing the prior “spot approval” for the sale individual units. Significantly, these regulations preclude FHA financing where 15% or more of the units are delinquent in paying fees and assessments. Additionally, only 50% of the units in a project may receive FHA financing, and that ratio will be reduced to 30% after 2010.
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