Fixed Rate FHA Loans

Of all the Home Mortgage Loans available by far the most popular is the FHA Fixed Rate Home Loan. Also called the 203(b), this loan features a fixed rate, allows 97% (of home value) financing and lower closing costs. This type of Home Loan is especially appealing to first time home buyers.

2013 FHA Limit for Orange County, California is $729,750 – which means if other qualifying factors are met – a borrower can finance a single family home with the purchase price of $752,320. FHA sets limits on maximum loan amounts on a county by county basis.

Information that will be required when submitting an FHA loan application is as follows:
(note: additional information may be requested at a later date)

  • Address to your place of residence (past two years)
  • Social Security numbers
  • Names and location of your employers (past two years)
  • Gross monthly salary at your current job(s)
  • Pertinent information for all checking and savings accounts
  • Pertinent information for all open loans
  • Complete information for other real estate you own
  • Approximate value of all personal property
  • Certificate of Eligibility and DD-214 (for veterans only)
  • Current check stubs and your W-2 forms (past two years)
  • Personal tax returns (past two years), current income statement and business balance sheet for self-employed individuals
  • Appraisal on subject property
  • Credit Report on all borrowers

The FHA sets limits on debt to income ratios also. Currently, the front end debt ratio (mortgage payments including principal, interest, insurance, taxes and HOA divided by gross income) is 31% and the back end (mortgage payments plus other debt payments divided by gross income) is 43%.

Typical closing costs on an FHA Home Loan include:

  • Lender's origination fee
  • Deposit verification fees
  • Attorney's fees
  • The appraisal fee and any inspection fees
  • Cost of title insurance and title examination
  • Document preparation (by a third party)
  • Property survey
  • Credit reports (actual costs)
  • Transfer stamps, recording fees, and taxes
  • Test and certification fees
  • Home inspection fees up to $200

Allowed in an FHA refinance loan are wire transfer fees, courier fees, reconveyance fees, and fees to pay off bills.

The credit report is a document that the lender will look at very carefully before approving a loan. The lender will look at the borrower’s past credit performance to determine whether the borrower is a good credit risk. Borrower’s with a marred history showing slow payments, poor financial judgment and delinquent accounts may not get approval. The following is a list of possible causes of concern that may result is declined loan applications:

  • No Credit History – this is required as it shows a borrowers capacity and willingness to repay a loan. The FHA may allow substitute forms; a good mortgage broker will be able to provide more information on this.
  • Chapter 13 Bankruptcy – if borrower shows good history of payments on a chapter 13 bankruptcy the FHA will consider approving the borrower (as long as other factors are satisfactory). The court trustee's written approval will also be needed in order to proceed with the loan. The borrower will have to give a full explanation of the bankruptcy with the loan application and must also have re-established good credit, qualify financially and have good job stability.
  • Chapter 7 Bankruptcy - At least two years must have elapsed since the discharge date of the borrower and / or spouse's Chapter 7 Bankruptcy, according to FHA guidelines. This is not to be confused with the bankruptcy filing date. A full explanation will be required with the loan application. In order to qualify for an FHA loan, the borrower must qualify financially, have re-established good credit, and have a stable job.
  • Late Payments - During an underwriter analysis of borrower credit, the overall pattern of credit behavior is being reviewed rather than isolated cases of slow payments. If a good payment pattern has been maintained, regardless of a specific period of financial difficulty preceded it, the borrower may escape disqualification.
  • Foreclosure - FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit. This does not include the inability to sell a home when transferring from one area to another.
  • Collections, Judgments & Federal Debts - A collection is minor in nature usually does not need to be paid off as a condition for loan approval. It is stated as such in FHA guidelines. Any judgments will have to be paid in full prior to closing. Borrowers who are delinquent on any federal debt, such as tax liens, student loans, etc., are not eligible.

A characteristic of an FHA Loan is the required payment of mortgage insurance. An upfront payment of 1.75% of the loan amount is required at loan closing; this amount can be added to the loan balance and does not affect the minimum 97% down-payment calculation. An annual payment of mortgage insurance is also required. The amount payable is based on the amount of down-payment made.

FHA Home Loans are beneficial to a majority of borrowers as they provide flexibility in the criteria required for approval. There are so many options available that it really pays to work with a knowledgeable broker who can help you choose the right product for you based on your individual financial situation.


For more information, contact out knowledgeable brokers at Loan People USA.

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