Understanding the FHA Mortgage

Unlike in years past, when it comes to financing your new home there are only four mortgage options available to homebuyers. These are FHA or Federal Housing Authority loans, Conventional/Jumbo or FANNIE MAE Conforming loans, RD or USDA Rural Development loans and VA or Veteran Administration loans.

CONTACT A SMART AGENT TO DETERMINE WHICH LENDER IS BEST FOR YOUR UNIQUE SITUATION! We know which lenders will say YES to your unique financial situation, plus give you the best rates and terms available to you. We can also tell you from our years of experience which lenders and broker to ABSOLUTELY STAY FROM!

Understanding and striving to meet the “ever changing” criteria for these loan programs is important to achieving a successful home purchase. This is just one of the many reasons why it’s essential that the Realtor you choose to help facilitate your home purchase, are themselves, well versed in the underwriting process and guidelines of each of these programs.

Smart Move Real Estate agents (Smart Agents) are highly trained in the criteria and processes of each of these loan programs.

FHA LOAN: These loans are typically made by a bank or direct mortgage lender. A borrower can choose to go through a “middle man” called a mortgage broker, however, they will typically pay higher rates and fees by doing this. FHA loans are not typically provided by the Federal Housing Authority itself, they simple “insure” the lender providing you with the loan against loss in the event of a default.

As of the writing of this article, the current basic criteria for an FHA loan are:

• The new 2018 FHA Loan Limits for a single family residence in Louisiana is $314,827. For a duplex the maximum loan is $403,125, Triplex is $487,250 and for a four-plex purchase, the maximum loan is $605,525. Purchasing a multi-unit property and renting out one or more units can defer or even eliminate a large portion of the homebuyers mortgage payment. The owner must intend to reside in one unit for a minimum of two years in order to obtain a owner occupied FHA loan.

• The buyer must have 3.5% of the purchase price of the property set aside for a down payment. IE: $100,000 purchase price = $3,500 required down payment. On certain occasions, these funds may be a gift from a family member. There are also grant programs available which can provide a home buyer part or even all of the down payment! However, you will need to talk to a Certified FHA Loan Officer to see if your unique situation will allow for this. You will also want to know that the maximum a seller can contribute to the buyer’s closing costs, pre-paid items such as taxes and insurances and title insurance is 6% of the sales price of the property. If negotiated properly by your agent, a homebuyer can feasible purchase a home with very little or even no money out of their pocket!

The minimum credit score which any of the direct lenders we recommend is to write an FHA mortgage is as low as 500. However, a home buyer should know the higher they can get their credit score up, the lower the interest rate will be. If you have had some credit issues in the past, many times your Certified FHA Loan Officer will be able to help you remedy some of these and increase your score enough to allow you to purchase your new home.

FHA borrowers must have a good 12 month rental or mortgage history to qualify. A borrower can have one or two late payments and still qualify depending on the specific lender underwriting guidelines. Remember, you’re buying a house. The lender and FHA are primarily concerned with how you pay your housing expense! If you currently rent from a property management company the lender will simply have to get a Verification of Rent (VOR) from the property management company. However, if you rent a house or apartment from an individual, discuss this situation with your Certified FHA Loan Officer.

• What about old charged off accounts and medical bills? What about old charged off accounts and medical bills? DON’T DO ANYTHING WITH THEM! Many times a homebuyer will try to “fix” their own credit by calling old accounts seeking to settle them. This very move can keep you from purchasing your home! A quick rule of thumb is “the older the account, the less it will impact your credit score.”  Contacting these companies to settle them will re-age the account. This will actually take an item which may only impact your score slightly, and turn it into an item which WILL negatively impact your score.  If you have derogatory entries on your credit bureau, let your Approved FHA Loan Specialist direct you how, and which ones, to fix.
• FHA Funding Fee & Mortgage Insurance: As mentioned earlier, in most cases, FHA only insures the lender against loss. They do not directly provide the loan. Thus being the case, FHA charges a 1.75% Funding Fee which is added on top of the principle mortgage amount; to make this clear, THIS MONEY WILL NOT COME OUT OF YOUR POCKET  and you will not need to bring the funding fee amount to closing. In addition, FHA borrowers will pay a monthly mortgage insurance premium of 1.35% of the loan. The downside of an FHA mortgage is that the mortgage insurance premium is never removed from an FHA loan. With other types of loans the Mortgage Insurance premium will cease once the balance of loan reaches approximately 80% of the value of the house.

An example FHA Mortgage Payment will look like this: Principle Loan Amount $139,428 – 4.25% interest for 30 years.

• Principle and Interest Payment:      $685.90
• Mortgage Insurance Payment:        $152.98
• Escrow for Tax & Insurance:           $122.22
• TOTAL MONTHLY PAYMENT:       $961.10