6 game-changing FHA home loan features often overlooked...

Aug 31, 2019 8:39:00 PM / by Brett O'Daniell

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Because they are government-backed, Federal Housing Administration (FHA) home loans have attractive interest rates and less stringent qualifications. Loan applicants must meet credit-score and down-payment requirements, and show proof of employment and a steady income. An appraisal of the home by an FHA-approved appraiser is also required.  Following are six features of FHA loans first-time homebuyers should consider while weighing their financing options.

 

1. Flexible guidelines give more purchasing power

  • Low Down Payment - as little as 3.5% down 
  • 100% gift allowable for down payment
  • Lower credit requirements. 580 minimum FICO credit score.
  • Competitive market rates
  • No income restrictions
  • Limited tradelines needed 
  • Higher debt-to-income ratios approval
  • Shorter waiting period for major credit events like bankruptcy

 

2. FHA loans are transferable to potential buyers

This means that a home buyer who finances a purchase with an FHA-insured loan and who sells the house later, when interest rates are higher, will be able to offer a potential buyer the right to assume his or her low-rate FHA loan.  In the current raising interest rate environment this is a huge advantage to FHA loans versus conventional loans.

 

3. Borrow cash for home repairs with FHA 203(k) 

  • Full and Streamline programs
  • Repairs and improvements vary based on program
  • Low down payment
  • 640 credit score
  • Owner occupied only
  • All rehab work must be completed by licensed and insure contractors
  • FHA/HUD consultant oversees project to protect borrower

4. Qualifying FHA Property Types

  • 1-4 unit properties
  • FHA approved condominiums (two types):  1. HUD Review Approval Process (HRAP) . 2. Direct Endorsement Approval Process (DELRAP): Some lenders offer the DELRAP method, which is an "in-house" underwriting department that can review and approve FHA condo projects which means faster turn times.  Click here to VIEW FHA APPROVED CONDO PROJECTS. 
  • Planned Unit Development (PUDs): These are a community of homes that could look like single family residences, townhomes or condos, and can include both residential and commercial units, but they’re most similar to condos. 
  • Modular homes
  • New construction

5. FHA Back to Work Program

  • Available to borrowers who suffered financial hardship due to reduced income or job loss
  • Shortens the waiting period to obtain FHA financing to as little as one year after bankruptcy, foreclosure, deed in lieu of foreclosure or short sale.
  • Must meet FHA loan requirements
  • Mortgage or credit problems that resulted from a financial hardship must be documented
  • Client must have re-established a responsible credit history for a period of 12 months prior to application
  • Client must complete HUD-approved housing counseling 30 days prior to loan application

6. Two types of mortgage insurance premiums to pay

  • Upfront premium: 0.75% of the loan amount, paid when the borrower gets the loan which can be rolled into the financed loan amount.
  • Annual premium: 0.45% to 1.05%, depending on the loan term (15 years vs. 30 years), the loan amount, and the initial loan-to-value ratio, or LTV. This premium amount is divided by 12 and paid monthly.

 

FHA and Conventional Loan Feature Comparison 

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Topics: Mortgage, Lending, FHA, Back to work, homebuyers, housing market, millennials, renovation, step-by-step, training, 203k, Credit, Credit Score, first-time

Brett O'Daniell

Written by Brett O'Daniell

Co-Founder of HomeTraq. 18+ years real estate and mortgage experience.

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