Stewart Brown Jr – Mortgage Loan Originator – Purchase or Refinance
| FHA or Federal Housing Administration loans make up about 15% of the mortgage market. An FHA loan is one that is insured by the government, more specifically HUD or the Department of Housing & Urban Development to protect lenders. These type of loans are good for lower or mid credit score borrowers. It’s also good to remember that these types of loans are not just for first time homebuyers. The program originated during the Great Depression when foreclosures and defaults rose sharply. FHA loans came out of the National Housing Act of 1934 which was intended to increase home construction and reduce unemployment. Today the program has insured over 50 million mortgages to date and is self-supporting due to insurance premiums paid into it by the borrowers. |
| FHA or Federal Housing Administration loans make up about 15% of the mortgage market. An FHA loan is one that is insured by the government, more specifically HUD or the Department of Housing & Urban Development to protect lenders. These type of loans are good for lower or mid credit score borrowers. It’s also good to remember that these types of loans are not just for first time homebuyers. The program originated during the Great Depression when foreclosures and defaults rose sharply. FHA loans came out of the National Housing Act of 1934 which was intended to increase home construction and reduce unemployment. Today the program has insured over 50 million mortgages to date and is self-supporting due to insurance premiums paid into it by the borrowers. |
| The minimum down payment on an FHA loan is 3.5% but you must have a minimum 580 credit score. In general, a minimum credit score of 500 is required for an FHA loan. Any score between 500-579 will require a 10% down payment. There are local and national DPAs or down payment assistance programs and grants that can help contribute partially or in full. The FHA also allows down payment money to come in the form of gifts from friends, family, an employer or labor union. However, the FHA also spells out who can’t provide a gift including a real estate agent, seller, builder or anyone else with an interest in the subject property. |
| The minimum down payment on an FHA loan is 3.5% but you must have a minimum 580 credit score. In general, a minimum credit score of 500 is required for an FHA loan. Any score between 500-579 will require a 10% down payment. There are local and national DPAs or down payment assistance programs and grants that can help contribute partially or in full. The FHA also allows down payment money to come in the form of gifts from friends, family, an employer or labor union. However, the FHA also spells out who can’t provide a gift including a real estate agent, seller, builder or anyone else with an interest in the subject property. |
| FHA or Federal Housing Administration loans make up about 15% of the mortgage market. An FHA loan is one that is insured by the government, more specifically HUD or the Department of Housing & Urban Development to protect lenders. These type of loans are good for lower or mid credit score borrowers. It’s also good to remember that these types of loans are not just for first time homebuyers. The program originated during the Great Depression when foreclosures and defaults rose sharply. FHA loans came out of the National Housing Act of 1934 which was intended to increase home construction and reduce unemployment. Today the program has insured over 50 million mortgages to date and is self-supporting due to insurance premiums paid into it by the borrowers. |
| FHA or Federal Housing Administration loans make up about 15% of the mortgage market. An FHA loan is one that is insured by the government, more specifically HUD or the Department of Housing & Urban Development to protect lenders. These type of loans are good for lower or mid credit score borrowers. It’s also good to remember that these types of loans are not just for first time homebuyers. The program originated during the Great Depression when foreclosures and defaults rose sharply. FHA loans came out of the National Housing Act of 1934 which was intended to increase home construction and reduce unemployment. Today the program has insured over 50 million mortgages to date and is self-supporting due to insurance premiums paid into it by the borrowers. |
| Mortgage insurance is probably the biggest downside of an FHA loan. With this loan there are two types of mortgage insurance you will need to pay. The first is a UFMIP or upfront mortgage insurance premium. This amounts to a one time 1.75% fee on your original loan amount and it can be rolled into your loan amount. Mortgage insurance is not dependent on the buyer’s risk profile unlike a conventional loan. It is the same amount for every borrower. Also, unlike a conventional loan it stays on for the life of the loan unless you put 10% down and then it falls off after 11 years. That’s why if you put down less than 10%, your longer term objective should be to refinance out of an FHA into a conventional loan. |
| Mortgage insurance is probably the biggest downside of an FHA loan. With this loan there are two types of mortgage insurance you will need to pay. The first is a UFMIP or upfront mortgage insurance premium. This amounts to a one time 1.75% fee on your original loan amount and it can be rolled into your loan amount. Mortgage insurance is not dependent on the buyer’s risk profile unlike a conventional loan. It is the same amount for every borrower. Also, unlike a conventional loan it stays on for the life of the loan unless you put 10% down and then it falls off after 11 years. That’s why if you put down less than 10%, your longer term objective should be to refinance out of an FHA into a conventional loan. |
| For all FHA loans, the property must be a primary owner occupied residence. If you don’t plan on occupying the home immediately, you must make plans to move in within 60 days of closing and it must be your primary residence for at least one year after closing. After this time you are permitted to rent out all or a portion of the home. 2-4 unit properties are permitted. However, condominiums need to be approved by the FHA. You can check and see if a particular condo development is approved at www.entp.hud.gov. House hacking is allowed to generate rental income. 75% of rental income is considered. There is a property flip rule which states that the property must be own for more than 90 days before being sold. |
| For all FHA loans, the property must be a primary owner occupied residence. If you don’t plan on occupying the home immediately, you must make plans to move in within 60 days of closing and it must be your primary residence for at least one year after closing. After this time you are permitted to rent out all or a portion of the home. 2-4 unit properties are permitted. However, condominiums need to be approved by the FHA. You can check and see if a particular condo development is approved at www.entp.hud.gov. House hacking is allowed to generate rental income. 75% of rental income is considered. There is a property flip rule which states that the property must be own for more than 90 days before being sold. |
| FHA loans have limits that are typically adjusted annually. As of 2022 the base or floor loan limits for low cost areas are $420,680 for a 1 unit property, $538,650 for a 2 unit, $651,050 for a 3 unit, $809,150 and for a 4 unit. For 2022 the ceiling or highest county loan limits for high cost areas are $970,800 for a 1 unit property, $1,243,050 for a 2 unit property, $1,502,475 for a 3 unit property and $1,867,725 for a 4 unit property. And then we have loan limits for Alaska, Hawaii, Guam and the Virgin Islands. For these four places, the limits are $1,456,200 for 1 single family home or 1 unit property, $1,864,575 for 2 units, $2,253,700 for 3 units and $2,800,900 for a 4 unit property. Your specific county will fall somewhere in between these numbers. To check out your specific loan limits visit www.entp.hud.gov where you can enter your specific state and county. |
| FHA loans have limits that are typically adjusted annually. As of 2022 the base or floor loan limits for low cost areas are $420,680 for a 1 unit property, $538,650 for a 2 unit, $651,050 for a 3 unit, $809,150 and for a 4 unit. For 2022 the ceiling or highest county loan limits for high cost areas are $970,800 for a 1 unit property, $1,243,050 for a 2 unit property, $1,502,475 for a 3 unit property and $1,867,725 for a 4 unit property. And then we have loan limits for Alaska, Hawaii, Guam and the Virgin Islands. For these four places, the limits are $1,456,200 for 1 single family home or 1 unit property, $1,864,575 for 2 units, $2,253,700 for 3 units and $2,800,900 for a 4 unit property. Your specific county will fall somewhere in between these numbers. To check out your specific loan limits visit www.entp.hud.gov where you can enter your specific state and county. |
| An appraisal done in conjunction with an FHA loan is much stricter than you’d receive with an “as is” appraisal on a conventional loan. FHA is extremely concerned with making sure the property meets its health and safety standards, is structurally sound, and is in move in condition. However, if the property does not meet these requirements you can do an FHA renovation loan. Common issues that would cause problems with an FHA appraisal are broken glass, non functioning or malfunctioning HVAC, chipping or peeling paint, plumbing problems, rotting wood, malfunctioning electrical or exposed wiring, and a damp or wet basement or crawlspace. Make sure your realtor helps you inspect the property thoroughly before the appraisal is done. |
| An appraisal done in conjunction with an FHA loan is much stricter than you’d receive with an “as is” appraisal on a conventional loan. FHA is extremely concerned with making sure the property meets its health and safety standards, is structurally sound, and is in move in condition. However, if the property does not meet these requirements you can do an FHA renovation loan. Common issues that would cause problems with an FHA appraisal are broken glass, non functioning or malfunctioning HVAC, chipping or peeling paint, plumbing problems, rotting wood, malfunctioning electrical or exposed wiring, and a damp or wet basement or crawlspace. Make sure your realtor helps you inspect the property thoroughly before the appraisal is done. |
| When looking at FHA debt to income ratios, the maximum front end ratio is 36.99% and the maxiumum back end ratio is 56.99%. However, the decision to approve a loan at these debt to income levels is done on a case by case basis. If you’ve incurred student loan debt and currently have outstanding balances on your credit report, FHA does not allow an IBR or Income Based Repayment. What this means is that your lender will need to use 1% of the outstanding student loan debt balance to calculate your monthly payment on these oblligations. It’s also good know that FHA allows for manual underwriting unlike conventional which is typically done through an Automated Underwriting System. |
| When looking at FHA debt to income ratios, the maximum front end ratio is 36.99% and the maxiumum back end ratio is 56.99%. However, the decision to approve a loan at these debt to income levels is done on a case by case basis. If you’ve incurred student loan debt and currently have outstanding balances on your credit report, FHA does not allow an IBR or Income Based Repayment. What this means is that your lender will need to use 1% of the outstanding student loan debt balance to calculate your monthly payment on these oblligations. It’s also good know that FHA allows for manual underwriting unlike conventional which is typically done through an Automated Underwriting System. |
| FHA loans do have some special features you want to be aware of. First off, there is a $100 minimum down payment through the HUD REO program. These properties were an FHA foreclosure and instead of 3.5% down you only need $100. There is also an FHA 203k rehab loan. These allow you to factor in renovation costs into your loan. These loans will take longer to close and tend to have higher rates. There also down payment assistant programs. Also, instead of a full refinance, FHA allows a streamline refinance option to lower your interest rate. What this means is that unlike a conventional loan you get to bypass the income verification, credit check and need for an appraisal. |
| FHA loans do have some special features you want to be aware of. First off, there is a $100 minimum down payment through the HUD REO program. These properties were an FHA foreclosure and instead of 3.5% down you only need $100. There is also an FHA 203k rehab loan. These allow you to factor in renovation costs into your loan. These loans will take longer to close and tend to have higher rates. There also down payment assistant programs. Also, instead of a full refinance, FHA allows a streamline refinance option to lower your interest rate. What this means is that unlike a conventional loan you get to bypass the income verification, credit check and need for an appraisal. |
| Unlike a conventional loan that goes through what is called an AUS or automated underwriting system by Fannie Mae and Fredd Mac and does not require the lender to manually underwrite, an FHA loan can be manually underwritten. In fact as of 2020 all FHA loans that exceed a 43% back end debt to income ratio or have a credit score under 620 must be manually underwritten. What this means is that there are acceptable compensating factors taken into consideration for loan approval. These factors include one or more of the following: verified and documented cash reserves, residual income or having an energy efficient home. It’s important to discuss these options if your loan is declined solely on the basis of an AUS. |
| Unlike a conventional loan that goes through what is called an AUS or automated underwriting system by Fannie Mae and Fredd Mac and does not require the lender to manually underwrite, an FHA loan can be manually underwritten. In fact as of 2020 all FHA loans that exceed a 43% back end debt to income ratio or have a credit score under 620 must be manually underwritten. What this means is that there are acceptable compensating factors taken into consideration for loan approval. These factors include one or more of the following: verified and documented cash reserves, residual income or having an energy efficient home. It’s important to discuss these options if your loan is declined solely on the basis of an AUS. |
Current FHA Rates
When you’re researching current FHA mortgage rates, you’ll likely see variations from one lender to another. Interest rates differ because lenders price their loans differently. It’s helpful to have an idea of average rates over time to help understand FHA loan interest rates. The historical rates below are national averages provided by a third party company.
Reach out to me for further detailed information on FHA loan programs.