FHA Mortgage Loans
What are FHA Home Loans?
The Federal Housing Administration (FHA) is a government agency created as part of the National Housing Act of 1934, also called the Capehart Act. Its purpose is to make housing and home mortgages more affordable via the FHA loan.
The Department of Housing and Urban Development (HUD) and FHA are the largest mortgage insurer in the world. However, the institution does not issue credit or lend itself. They insure the mortgage loans in form of Mortgage Insurance Premium or MIP. There are 2 main types of FHA Purchase Loans: (1) 203b, and (2) 203k, respectively.
What is an FHA 203b Loan?
Federal Housing Administration (FHA) was formed in 1934, helping borrowers to purchase or refinance a home. FHA offers a range of loan programs, the 203b being the most commonly used, to purchase a home or to refinance an existing one. The Federal Housing Administration does not directly offer to finance a 203b loan, rather it is offered by FHA approved lenders, such as AMCAP Mortgage. It can be one-to-four single family residential property. It is available for both urban and rural properties.
The biggest advantage of a 203b loan program is it requires very low down payment, compared to the conventional loans. All FHA loan programs only require a 3.5% down payment. Borrowers can finance up to 96.5% of the purchase price. With lenient credit score and low down payment requirements, it is a very attractive option for prospective home buyers, especially the first time home buyers. Closing cost can also be paid by the Seller, up to 6% of the purchase price.
An FHA loan is the best option for borrowers who are unable to qualify for and are not up to, the requirements of a conventional loan. Those with prior bankruptcy or foreclosure can also qualify for this loan, provided, the statute of limitation has been met. Financing period is fixed for either 15 years or 30 years, depending upon the borrower’s need, unlike an ARM loan.
Requirements and Eligibility for 203b Loan
To qualify for an FHA 203b loan, a borrower needs to meet certain criteria. The borrower has to qualify based on credit requirement. Most lenders require a minimum of 640 middle FICO score. AMCAP Mortgage is one of the few lenders in Texas that only requires a minimum of 580 middle FICO score to qualify for an FHA 203b loan.
The FHA 203b mortgage program has loan limits set for each county. A complete list of mortgage limits in your area can be found here.
Credit and Debt-to-Income Ratio
A credit score is not the only basis on which a borrower can qualify for an FHA loan. An important aspect is the rental or mortgage payment history. A stable payment record without any late payment is a must, especially in the last 12 months prior to application. The borrower’s debt-to-income ratio is a factor in qualifying, it determines affordability.
A borrower should be able to document his income using a 30-day paycheck stub. The last 2 years of tax returns are required for all borrowers when applying for an FHA loan.
FHA loans require the Mortgage Insurance Premium (MIP). The MIP insures the loan against future default by the borrower. In the event of default, it insures the difference between the amount the property can be sold at a foreclosure auction versus the actual payoff amount, up to 20% of the original purchase price.
For additional information about FHA insured loans, contact our FHA Loan Specialists at (832) 356-5605 or use the tools on the website.