Important FHA Guidelines for Borrowers
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.
FICO® score at least 580 = 3.5% down payment.
FICO® score between 500 and 579 = 10% down payment.
MIP (Mortgage Insurance Premium ) is required.
Debt-to-Income Ratio < 43%.
The home must be the borrower's primary residence.
Borrower must have steady income and proof of employment.
An FHA Loan is a mortgage that's insured by the Federal Housing Administration. They allow borrowers to finance homes with down payments as low as 3.5% and are especially popular with first-time homebuyers.
FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.
FHA Payment Requirements: The “12 Month Rule”
For best results, you should plan to begin the FHA loan application process with no less than 12 consecutive calendar months of on-time payments for all financial obligations including rent/mortgage payments. Those 12 months should be up to and including the month you apply for the loan.
FHA Mortgage Insurance Premiums
Most FHA mortgage loans today (with certain exceptions listed in the FHA loan handbook for transactions on tribal lands or Hawaiian homelands) require an Up Front Mortgage Insurance Premium (UFMIP) and an annual mortgage insurance premium which is paid in installments over 12 months. The monthly payment is considered part of your monthly mortgage obligation.
Mortgage Loan Amount Rules: No Cash Back on Forward Mortgages
FHA “forward mortgages” or purchase loans can be made only for the amount of the mortgage plus approved add-ons to the loan amount; UFMIP, certain closing costs, etc.
Forward loans will not result in cash back at closing time unless you are due a refund for something paid up front but later financed into the loan. FHA forward mortgages cannot be used as a personal loan-some want to apply for more than the transaction requires and take the excess in cash. This will not happen with FHA mortgages.
Minimum Down Payments
The FHA loan minimum down payment requirement for forward mortgages is 3.5% of the adjusted value of the home. Some make higher down payments due to credit issues as a “compensating factor”. Some want to know if there is a no-money-down option with FHA mortgages, but the only kind of zero down payment FHA new purchase loan available is intended to assist victims of a natural disaster in a federally declared disaster area.
FHA Loan Requirements for Occupancy, Residency
FHA home loans-new purchase mortgages, One-time Close construction loans, 203(k) rehab loans, and others-require the borrower to be an owner/occupier of the property secured by the FHA mortgage. When it comes to U.S. residency issues, the borrower(s) do not have to be United States citizens. FHA loan rules state that the applicant must be in the U.S. legally and have documentation to prove it. That means resident aliens and nonresident alien loan applicants are permitted. Documentation of legal status is required.
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