FHA loans – Easily the most widely available loan program for retail buyers to help them purchase their primary residence with a small down payment. FHA loans are more forgiving than conventional loans when it comes to credit and cosigners. There are of course limitations and these loans too have been getting harder to obtain. Bottom line – if you are selling a house right now you need to understand FHA Loans.
This page is intended to be a reference page for FHA Loans you can come back to to check for new updates. If you have any comments, questions, or suggestions, please leave a comment.
Borrower Qualifications:
Debt – To – Income Ratio 31%/43%
- 31% – The new house payment / Gross Monthly Income
- 43% – New House Pmt + Other debt / Gross Monthly Income
- Some exceptions made to stretch this if other “compensating factors” exist.
Income – Need good steady last 2 years of income. If trying to use a second job, it is preferred that the borrower have had a history of working the two jobs for 2 years. The minimum would be one year working 2 jobs. All income must be fully documented with pay-stubs and W2’s or tax returns.
Co borrowers – strong point of FHA loans. With minimal down payment a normally unqualified primary borrower (college student with no job, for example) can have his parents co-sign even though he has no income on his own. Conventional loans that have allowed this have traditionally required much more hefty down payments.
Credit – Traditionally there were no minimum credit score requirements, but recently they have been imposed by many lenders. 580 is where most are right now as a minimum. We have see n some set the bar at a 600 score recently even. There are a few lenders willing to go lower than a 580, but these would probably be unusual circumstances (i.e. – borrowers credit actually looks better on paper than the score would indicate.) Chances are if the score is less than 580, there are good reasons, and the borrower may need to work on their credit.
Most important thing with credit is the past 12 months history. Past issues with credit can be overlooked if explained well and circumstances are unlikely to reoccur. Some collections and charge offs can possibly be left open, especially those medical in nature.
Assets – 3% is the minimum cash investment by a borrower with FHA loans. Assets need to be verified on paper using bank statements. The 3% does not have to come directly from the borrower, however – it can be a gift from a relative or other acceptable source. Wherever it comes from a paper trail is needed. It cannot come from the seller – the recent housing bill eliminated programs such a Nehemiah, which allowed sellers to gift a down payment indirectly.
As of January the 3% is scheduled to be increased to 3.5% Sellers are allowed to contribute up to 6% of the purchase price towards the buyers closing costs. This makes FHA Loans the very cheapest way to buy a property right now for most buyers in depressed real estate markets. The conventional options require down payments from 5% or greater and only allow the seller to contribute 3% of the price towards costs.
Exception – HUD has a program to buy with only $100 down on select properties that HUD has foreclosed on. Find a home here and we can get your buyer in for $100. HOMES FOR $100 Down
Seasoning – Sellers must be on title to property for 90 days – PRIOR to signing a contract to sell the home to a buyer who is applying for FHA financing. So earliest contract can be signed is the 91st day. Most active investors are currently aware that the legislation that was passed regarding the waiving of this 90 day period was meant only to apply to those non-bank entities selling foreclosure properties on behalf of the banks. Does not apply to the individual investor. Read for yourself here: HUD Flipping Waiver
Appraisal issues – anything that will cause an appraiser to have to note a safety hazard certainly has to be fixed prior to funding on a regular FHA loan. If there are water stains in the ceiling, a roof inspection will be required. Findings on a roof inspection will need to be remedied prior to funding. Exception – buyer is using a variation on an FHA loan that provides funds to repair the issues after closing.
Condos- need to be approved – check here: FHA Approved Condos
Click here for procedure for getting a: Spot Condo Approval
Townhouses / PUDs – no longer need approval.
Loan Limits – check here: FHA Loan Limits
Well & Septic on property? Well Testing Requirements
- Surveyor should indicate distance from well to septic tank, property lines, and house (request should be made for this – do not assume they will do it)
Interesting, a little dated powerpoint presentation from HUD: click here
**NEW – FHA looking at your current home more closely. If you currently own a home and want to buy a new one with an FHA loan, you used to be able to use rental income from the house you were moving out of to offset the payment. Maybe not so anymore. If you have less than 25% equity in your current home you can only buy a new home with an FHA loan if you can qualify with both the new house payment and the old, without using any potential rental income from the house you are moving out of. And you will likely have to pay for an appraisal on the home your leaving as well as the home you are buying.
Will come back and update further. I know there are missing items here for the moment. If you have a particular immediate situation that you want to speak about feel free to call the office. 877-8GO-GREEN
Craig
