What does FHA have to offer? More Than You Think
The Federal Housing Administration was established in 1934, in the heart of the Great Depression. During that time, unemployment peaked nationwide; residential and commercial construction was either stagnant or declining; loans were very difficult to obtain; and homeownership was a near impossibility with only 4 in 10 Americans owning a home of their own. In an effort to offset these dismal circumstances, the government founded the Federal Housing Administration. It is the only government agency that is completely self-sustaining, in other words taxpayers need not contribute a penny. The FHA helped by qualifying homebuyers for lending institutions and insuring those institutions against any loss in principal should a homebuyer default on his or her loan. Since its inception, the FHA continues to help families realize the American dream of homeownership.
The FHA has certain requirements a potential homebuyer must meet in order to qualify for an FHA loan. First, the FHA requires a history of at least two years of steady employment, preferably with the same employer. It also requires that income over the previous two years has either remained constant or increased. Second, the FHA takes into account the home borrower’s credit history and overall credit score. The credit history should not contain more than two thirty-day late payments in the previous two years. A credit score of 620 or higher is also required. Third, any bankruptcies should be at least two years old, provided the home borrower has had perfect credit since the bankruptcy discharge, and any foreclosures must be at least three years old with perfect credit since. Finally, although the amount of income earned is of little consequence, the new mortgage payment cannot exceed 30% of the home borrower’s total gross income, which is income earned before taxes.
These qualifications help the Federal Housing Administration determine if a potential homebuyer is a good risk for the lending institution. The FHA charges home borrowers one half a percentage point for insurance on their property. This insurance allows the approved lending institution to offer the FHA loan to the home borrowers at a lower interest rate than it would have otherwise. Case in point: while most conventional financing require a minimum down payment of 20% of the purchase price of the property, an FHA loan requires as little as 3.5% on a down payment. That is a $16,500 difference on a home purchased for $100,000. Not only can a potential homebuyer qualify with a less than perfect credit score, but the Federal Housing Administration is also open to different sources of credit for those borrowers who have yet to establish a credit history. Such alternative sources of credit include utility bills and cell phone bills. The FHA could help potential homebuyers by contributing up to 6% in closing costs. It allows co-signers and guarantors who do not have to reside in the home, such as out-of-state in-laws, to sign on the loan.
Moreover, FHA loans are not limited to conventional home purchases. FHA offers loans to home borrowers who would like to purchase a foreclosure or short sale that require potentially extensive repairs and improvements. The FHA 203(k) loan allows home borrowers to finance repairs that are necessary in order to meet inhabitability standards. Due to the increased availability of foreclosure, short sale, and bank-owned properties, many of which are targets of vandalism, rodent infestations, and out of control vegetation, the FHA 203(k) is gaining in popularity. The qualification process for this special loan is the same as that of other FHA insured loans, as aforementioned. If a potential homebuyer is interested in a FHA 203(k), first he or she should obtain a preapproval from an FHA-approved lending institution. After a home borrower is preapproved for a maximum loan amount and has located a property that requires renovation, then the home-improvement costs are added to the “as-is” appraised value of the property, which cannot exceed the maximum loan amount as stated in the preapproval letter. A licensed, professional contractor must provide the potential homebuyers invoiced estimates for any repairs and improvements on the property. The FHA 203(k) allows homebuyers to purchase a fixer-upper and complete necessary repairs before they move into their new home.
FHA loans provide first time homebuyers the opportunity to realize the American dream of homeownership. First-time homebuyers also have the opportunity to purchase a foreclosure, short sale, or bank-owned property, which are not only widespread in today’s economy, but also require improvements to deem livable.
Although FHA loans offer the most incentives for first-time homebuyers, they are not limited to first timers. If a homebuyer can afford the monthly payments and meet the other requirements as outlined above, then FHA loans are also viable option for 5th time homebuyers. The Federal Housing Administration offers many good opportunities for home purchases; the key is knowing how to take advantage of them.
Posted By: Vanessa Rodriguez | July 30, 2010 at 4:03 pm |
http://www.freerateupdate.com/fha-loans/what-does-fha-have-to-offer-more-than-you-think-5874
