FHA LOANS...What you need to know

If you have been in the market for a home lately, you have probably talked with to someone that asked you what type of loan you will be acquiring to purchase your home.  There are a few different types of loans and the two most common are a Conventional or a FHA.  The FHA loan simply stated, is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. 

                                                      

 

 

FHA requirements define 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 existing FHA loan. 

 

Fee’s that are allowed by FHA include:

Lender’s origination fee

Deposit verification fees

Attorney’s fees

The appraisal fee and any inspection fees

Cost of title insurance and tile examination

Document preparation (by a third party)

Property survey

Credit reports (actual costs)

Transfer stamps, recording fees, and taxes

 

If you are refinancing an FHA loan, there are additional fees that may be included:

Wire transfer fees

Courier fees

Re-conveyance fees

Fees to pay off bills

                                                                 

FHA has tightened up their requirements to prevent home buyers from getting into a home they truly cannot afford.  Borrowers and/or their spouse’s must now qualify according to a set debt to income ratios.  The two ratios 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 are as follows:

 

1.)    Mortgage Payment Expense to Effective Income

This simply stated is the total mortgage payments divided by the borrower’s monthly income.  The maximum ratio to qualify is 31%. 

2.)    Total Fixed Payment to Effective Income

This is the total monthly mortgage payment and all recurring monthly revolving and installment debt divided by the monthly gross income of the borrower.  This maximum ratio to qualify is 43%.

 In both of these situations, above indicators do not exclusively determine whether or not a candidate will qualify for an FHA loan.  Credit history and job stability will also play a factor in the final decision.

FHA will also require their own home inspection (at the buyers cost) and they will have specific requirements a home must pass in order to qualify for an FHA loan.  A few of these items include, but are not limited to:  

~Siding

~Roof

~Lead based paint

~railings

In general, any health or safety issues in a home purchased with an FHA loan, the inspector will order a repair ticket and the flagged item will need to be fixed prior to the closing of the home.  Any items flagged by an FHA inspector, will also need to be re-inspected, at a cost before the loan will be granted and a closing allowed to happen.

Dan Hennen

Dan Hennen

Executive Sales Associate
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