Poli Mortgage Answers Three Questions About FHA Loans

Chip Poli, President/CEO of Poli Mortgage, Inc., provides in depth answers to questions regarding FHA loans.

1)      What is an FHA loan?

The Federal Housing Authority (FHA) is federal governmental agency within the Department of Housing and Urban Development. Created to help Americans buy homes, it insures private home loans. FHA loans do not originate with the FHA. Rather, the loans are provided by private lenders such as banks and credit unions and guaranteed by the FHA. These guarantees reduce the risk to lenders when they issue loans while creating greater borrowing power for qualified loan applicants – even those with less money available for a down payment.

FHA loan limits vary among different states, so if you are hoping to apply for one, you should begin by checking the limit in your area and also finding out your credit rating. While FHA loans typically do not have credit requirements that are as stringent as other loans, it is still important to know your FICO credit score before you apply. While FHA loans often carry lower closing costs than conventional loans, borrowers must pay for mortgage insurance. Interest rates on FHA loans are generally comparable to the national average for rates on conventional loans.

2)      What are the requirements to secure an FHA loan?

In order to be eligible for an FHA loan, you must meet standard guidelines for  income, employment, and you must have a social security card. You will need to show that you have held a steady job for two years with consistent or rising income. Typically, your credit score should be above 620. Debt-to-income (DTI) requirements will vary depending on the strengths of the overall borrower profile.  Standard FHA guidelines are 31%/43% but with strong credit, deaths, payment history, retained savings and reserves established, verified housing history at or close to the new payment will often allow for higher DTI ratios.  Expect to provide your loan officer with employment information, W-2 forms and tax returns, bank account balance, and other financial information in order to apply.

If you have suffered a foreclosure, you may still apply for an FHA loan, but you will not be eligible until three years have passed unless you can show extenuating circumstances and good credit. You must wait two years after filing for bankruptcy before you are eligible to apply for an FHA loan.

3)      What is the FHA 203(b) loan?

The most popular FHA loan is the 203(b) loan. It is particularly appealing to first-time homebuyers because the down payment is minimal. This type of loan can finance up to 97% of your purchase. While it requires certain debt to income ratios, the 203(b) does not require a minimum income. There are other types of FHA loans, but homebuyers are often thinking of the (203)b when they look into applying for an FHA loan.

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