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 loansCONTACT A SMART AGENT FIRST TO DETERMINE WHICH LENDER IS BEST FOR YOUR UNIQUE SITUATION! We know which lenders will say YES and NO to your situation!

    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.

    Smarty FHA sign, Understanding The FHA Mortgage 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 $294,515. For a duplex the maximum loan is $377,075, Triplex is $455,800 and for a four-plex purchase, the maximum loan is $566,425.
    • 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.

    The minimum credit score which any of the direct lenders we recommend is currently able 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. 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 from an individual, you are most likely going to be REQUIRED to produce the last twelve months of cancelled checks to prove you paid your rent on time. On occasion, there can be exceptions for this requirement. You will need to discuss this 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 USDA RD 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. 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 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


    Client Testimonials

    I am almost 60 years young and have needed to depend on realtors about 5 times in my life, either with buying new property or selling old. Derek was the very first that came with no irritation, or that feeling that I can’t wait to never see this person once the deal is done! With changes in life through new housing being hard enough, Derek Overstreet will become a family friend, due to his professional and trusting guidance as your realtor.
    Lizzette, Baton Rouge LA