FHA REQUIREMENTS

Important FHA Guidelines for Borrowers

The FHA (Federal Housing Administration) provides mortgage insurance on loans from FHA-approved lenders for single-family and multi-family homes in the U.S. and its territories. Since 1934, it has insured millions of properties, making it the world's largest insurer of residential mortgages.

• FICO® score at least 580 = 3.5% down payment.

• FICO® score between 500 and 579 = 10% down payment.

• MIP (Mortgage Insurance Premium ) is required.

• Debt-to-Income Ratio < 43% (now up to 55%!).

• The home must be the borrower's primary residence.

• Borrower must have steady income and proof of employment.

Who can qualify for an FHA loan?

FHA home loans are available to any financially qualified borrower, with no minimum or maximum income limits. While often perceived as a solution for those who can't afford conventional mortgages, FHA loans are beneficial for borrowers with good credit due to the low down payment options.

Your credit history and FICO scores are crucial when applying. A FICO score of 580 or higher qualifies for maximum financing with a 3.5% down payment. Scores between 500 and 579 require a 10% down payment, while those below 500 are ineligible.

Additionally, a 12-month record of on-time payments for financial responsibilities, such as rent, car payments, student loans, credit cards, and utilities, is necessary. A strong debt-to-income ratio is also important for demonstrating your ability to manage and pay off your bills, influencing loan approval.

Can I pay off my FHA loan early without being penalized or charged a fee?

Yes, you can pay off your FHA loan without a penalty for early pay off. HUD explains that a borrower may pre-pay an FHA mortgage in whole or in part and that the mortgage lender can't charge a penalty if you decide to do this. You can find this information in HUD 4155-2 (Chapter 3), also called "Lender's Guide to the Single Family Mortgage Insurance Process."

There is a provision for people who obtained their mortgages before 1985 that requires 30 days written notice in order to avoid an extra month's interest. However, few if any people are still in mortgages that old, so it is not likely to apply.

FHA Cash-out Refinance Mortgages

Sometimes It Pays to Refinance

The FHA cash-out refinance option allows homeowners to pay off their existing mortgage, and create a larger home loan that provides them with extra cash. The amount of money that can be borrowed depends on the amount of equity that's been built up in the home's value.

To be eligible for an FHA cash-out refinance, borrowers will need at least 20 percent equity in the property based on a new appraisal. Equity is the difference between the current value of a property and the amount owed on the mortgage.

In the following example, a borrower obtained an FHA loan of $275,000 to purchase a home. He makes his monthly payments as agreed. As of today, the value has increased to $350,000 with a balance of $250,000 owed on the mortgage.

In this example, a loan of up to 80 percent of the appraised value of the home would be permissible ($350,000 x .80 = $280,000). When subtracting the amount that is still owed on the existing mortgage ($250,000) leaves a maximum “cash-out” amount of $30,000 (less closing costs).

WE NOW HAVE FHA PROGRAMS THAT TAKE ONLY ONE-YEAR TAX RETURNS! NO MORTGAGE INSURANCE REQUIRED!

If you have any questions about FHA loans, feel free to reach out. I'm here to assist with the application process, eligibility requirements, and any other concerns.

Your financial well-being is my top priority, and I'm here to help you every step of the way.