Share

The loan process is complicated and finding information online is often random and inconsistent so I have compile the information for the FHA.com site into a printable guide for those that want to keep it as a reference for later use. Hope it helps.

 

FHA LOANS FOR HOMEOWNERS

Take the Steps to Get Your Mortgage

Purchasing a home is one of life's major landmarks and for some, it is even a dream come true. At FHA.com we understand the magnitude of this decision and it is our goal to make your transition into home ownership unforgettable. Regardless of whether this is your first or your fifth home purchase we will do our best to ensure that getting you into your new home is a pleasant and memorable experience.

FIRST STEPS

When you begin to seriously consider purchasing a new home it is important that you follow some simple steps to make sure that the process runs smoothly.

The first thing you should do is an analysis of your debt to income ratio. This important step will let you know what type of home you can afford based on your monthly income and expenses.

The next important step in purchasing a new home is to get pre-approved for a home loan. The peace of mind that comes with knowing that your mortgage loan and credit report have been approved will allow you to shop for your new home with confidence. And when you find a home and are ready to make an offer the fact that you have already been pre-approved for your loan amount will give the seller confidence in you as a buyer.

 

FHA LOAN GUIDELINES

Important Facts About the FHA Loan Process

The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since 1934 when it was created.

 

FHA MORTGAGE INSURANCE

FHA insured loans require mortgage insurance to protect lenders against losses that result from defaults on home mortgages.

Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA loans require

mortgage insurance primarily for borrowers making a down payment of less than 20 percent.

Mortgage insurance is charged to the homeowner each month at the rate of .5 percent per year of the total loan amount. FHA also charges an upfront mortgage insurance premium of 1.5 percent.

FHA's monthly mortgage insurance payments will be automatically terminated when these conditions occur:

For mortgages with terms 15 years and less and with Loan to Value ratios 90 percent and greater, annual premiums will be canceled when the Loan to Value ratio reaches 78 percent regardless of the amount of time the mortgagor has paid the premiums.

For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the Loan to Value ratio reaches 78 percent, provided the mortgagor has paid the annual premium for at least 5 years.

Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will not be charged annual mortgage insurance premiums.

 

FHA LOAN LIMITS

FHA lending limits vary based on a variety of housing types and the state and county in which the property is located. The loan Limit for a single-family home in Houston is $271,050.00

 

LOAN CHECKLIST

FHA Loan Checklist

Prepare for a Smooth Application Process

Before you start the FHA loan process, be prepared to provide some information to your loan officer. Have it ready now to save time later.

Address to your place of residence (past two years)

Social Security numbers

Names and location of your employers (past two years)

Gross monthly salary at your current job(s)

Pertinent information for all checking and savings accounts

Pertinent information for all open loans

Complete information for other real estate you own

Approximate value of all personal property

Certificate of Eligibility and DD-214 (for veterans only)

Current check stubs and your W-2 forms (past two years)

Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals

In addition, you will need to pay for a credit report and appraisal of the property.

CLOSING COSTS

While FHA defines which closing costs are allowable as charges to the borrower, the specific costs and amounts that are deemed reasonable and customary are determined by each local FHA office. All other costs are generally not allowed and are usually paid by the seller when buying a new home, or paid by the lender when refinancing your exising FHA loan.

Lender's origination fee

Deposit verification fees

Attorney's fees

The appraisal fee and any inspection fees

Lender's origination fee

Cost of title insurance and title examination

Document preparation (by a third party)

Property survey

Credit reports (actual costs)

Transfer stamps, recording fees, and taxes

Test and certification fees

Home inspection fees up to $200

Allowed in an FHA refinance loan are wire transfer fees, courier fees, reconveyance fees, and fees to payoff bills.

 

FHA DEBT RATIOS

In order to prevent homebuyers from getting into a home they cannot afford, FHA guidelines have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios.

In order to prevent homebuyers from getting into a home they cannot afford, FHA guidelines have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios. These ratios are used to calculate whether or not the potential borrower is in a financial position that would allow them to meet the demands that are often included in owning a home. The two ratios are as follows:

1) MORTGAGE PAYMENT EXPENSE TO EFFECTIVE INCOME

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 29%.

See the following example:

Total amount of new house payment: - $750

Borrower's gross monthly income (including spouse, if married): - $2850

Divide total house payment by gross monthly income: - $750/$2850

Debt to income ratio: - 26.32%

 

2) TOTAL FIXED PAYMENT TO EFFECTIVE INCOME

Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%. See the following example:

Total amount of new house payment – $750

Total amount of monthly recurring debt – $400.

Total amount of monthly debt $1150.

Borrower's gross monthly income (including spouse, if married): - $2850.

Divide total monthly debt by gross monthly income: - $1150/$2850

Debt to income ratio: 40.35%

Please note that the above indicators do not exclusively determine whether or not a candidate will qualify for an FHA loan. Other factors will be considered, including credit history and job stability.

 

FHA CREDIT

An FHA loan applicant's past credit performance that demonstrates good credit history and a solid track record of timely payments will likely be eligible for the mortgage.

Before approving a loan, the lender analyzes the integrity of the borrower's past credit performance. Those who have a good credit history demonstrated by a solid track record of timely payments will likely be eligible for a loan. Potential borrower's whose credit history is marred by slow payments, poor financial judgment and delinquent accounts is not a good candidate for loan approval.

The following is a list of items concerning the borrower's credit:

NO CREDIT HISTORY

Two lines of credit are necessary to apply for an FHA loan. However, in the event a borrower does not have sufficient credit on their credit report the FHA will allow substitute forms.

CHAPTER 13 BANKRUPTCY

FHA will consider appoving a borrower who is still paying on a Chapter 13 Bankruptcy if those payments have been satisfactorily made and verified for a period of one year. The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.

CHAPTER 7 BANKRUPTCY

At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.

LATE PAYMENTS

During an underwriter analysis of borrower credit, the overall pattern of credit behavior is being reviewed rather than isolated cases of slow payments. If a good payment pattern has been maintained, regardless of a specific perod of financial difficulty preceded it, the borrower may escape disqualification.

FORECLOSURE

FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.

COLLECTIONS, JUDGEMENTS AND FEDERAL DEBTS

A collection is minor in nature usually does not need to be paid off as a condition for loan approval. It is stated as such in FHA guidelines. Any judgments will have to be paid in full prior to closing. Borrowers who are delinquent on any federal debt, such as tax liens, student loans, etc., are not eligible.

 
Next we’ll talk about VA loans
Information from FHA.com