If you have talked to anyone about getting a mortgage recently you’ve probably heard about FHA loans or “Government Backed” or “Government insured loans”. A common misconception is that these loans are only for very low income people who can’t get a traditional loan from a bank, or first time home buyers, but this is not the case….
Uncle Sam wants You… to qualify!
There are very broad criteria for FHA insured loans that just about many people can qualify for. This doesn’t mean everyone does though. For example, FHA loans have more liberal credit guidelines, unlike many other loan products, but there are still criteria that need to be met.
The Background of FHA Loans…
FHA doesn’t “loan” you the money for a home. What FHA does is “insure” the loan for the bank that lends you the money. With that said, the lender doesn’t have as much risk when FHA “has your back” so to speak, and can lend you the money more liberally.
This is the beauty of this loan program. With banks, more risk to them means more money from you, or higher interest rates, or down payments, or whatever helps them sleep at night. So now without as much of the risk, they can lend you money they may otherwise have denied you.
Some FHA Loan Requirements to know:
- FHA will require a 3.5% down payment (may soon be 5%) from the Buyer, but this can also be a gift from family .
- They will also allow the seller to pay up to 6% of the closing costs on your behalf.
This can save the buyer most if not all of the out of pocket money needed to purchase their home and help them realize their dreams of Home ownership now without having to save enough cash for a 20% down payment and closing costs.
- FHA will also require Mortgage Insurance for the loan. The upfront mortgage insurance amount is around 2.25% of the sale price and .5% per year. That might sound like a lot of money to some people, but remember, with any loan with less than a 20% down payment you will be paying mortgage insurance anyway, and here it’s about the same each month as a conventional loan. Plus, the 2.25% can be financed in the loan so there is no out of pocket necessary at the time of purchase.
There are other factors and guidelines that are beyond the scope of this article, but if you need more info contact me and I’ll get you what you need.
So, Can I Qualify or What??…
Great question. If you have less than perfect credit, only a little money in the bank, self employed, or just moved in the country you CAN get a FHA insured loan, but need to speak with a loan officer that can go through the details of your financial situation and see if you qualify.
I can tell you that I know a few loan officers that can do this and don’t charge anything for their time. You just need to be honest and have certain documents available for them so it won’t take longer than necessary to find out if they can help you. I’ll be happy to recommend someone like this if needed, simply contact me today.
I’m qualified now what?…
This is where a Realtor comes in the picture. Finding a home has become a bit of a challenge these days due to less inventory on the market, competing with cash buyers, and the large number of foreclosures that are NOT suited for FHA financing.
Once you find a property that will work for you, you need to make sure you have the proper documentation and contracts that allow for this type of financing. You also need to know how to communicate that with the seller so it doesn’t ruin the deal and cost you money and time, if there are possible “landmines” that might come up during the transaction.
This is where you need to make sure your Realtor knows FHA guidelines and what will be a problem. If the home has a leaky roof or foundation issues then most lenders are going to tell you they won’t finance it until it is repaired. In addition, some FHA deals fall through just because homes are missing a stove or refrigerator! Those are minor issues, but if you don’t know this (or your Realtor) then it can cost you time and money during the process.
Feel free to post your remarks or any questions you might have regarding FHA loans below and I’ll be sure to answer them. Also feel free to contact me if you’d like to know more about how an FHA loan can help you buy a home TODAY!