FHA Loan Answers: Understand FHA Refinancing and FHA loan requirements...

FHA refinance and loan requirements you NEED to know...

FHA Loan Answers.com is a site that I (a Realtor in S. FL) created to help people understand FHA loans and FHA loan requirements. While working with many FHA borrowers and home buyers I realize that there is a lot of misinformation out there and figured I could help give people good information about this great loan option. I try to cover some of the points that cause problems for borrowers in today's market and try to give you ways to navigate through them while saving yourself time, headache, and money.

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Basic overview of an FHA loan & requirements…

If you are thinking of buying a home and want to know more about FHA loan requirements and what FHA loans are all about then keep reading. I will give you some of the basic FHA loan requirements you’ll want to know as a buyer, and even as a seller, if FHA loans are a popular way buyers are financing in your area.

Some benefits of using FHA loans to buy a home…

If you’re wondering what the benefits FHA loans offer today’s home buyers than you’re not alone. Many home buyers hear of these loans and how great hey are, but are not really sure why.

Two reasons why these loans can be a good option for any home buyer are: Low down payment requirement and easier qualifying standards.

Low down payment requirement: FHA only requires 3.5% of the purchase price of the home as a down payment. Most lenders these days will want to see 20%-25% down even with good credit. That can keep a lot of people from realizing their home buying dreams. The reality is many people CAN afford the monthly payment of a home but coming up with tens of thousands of dollars out of pocket is a little trickier.

Easier Qualifying Standards: With FHA loans there are easier guidelines and more forgiving standards than some conventional lenders. FHA loan requirements in regards to a buyer's credit are lower than conventional loans, and as of this writing, a buyer must have at least a 620 FICO score. That means that those with less than perfect credit can still borrow the money they need, and the rates are usually similar with those of conventional loans.

What is an FHA Loan?

There are tons of people asking me, “What is a FHA loan?” or “What is an FHA mortgage?”, so let me answer the question. In addition to FHA loans being one of the most popular loan products in 2009, and their gaining popularity, few people understand the role FHA plays in the loans it insures.

FHA is NOT a bank or lender as many believe. They DO NOT write checks for people who are buying homes. The FHA is actually a government entity that “insures” loans made by lenders/institutions/banks to people who are approved by FHA to borrow the money, based on the FHA loan requirements and criteria set by FHA.

This is a very oversimplified explanation, but the bottom line is this: FHA lets lenders know that if the borrower defaults on their home loan that they (FHA) will insure any loss to the lender. That in turn allows lenders to feel more “secure” in lending money to borrowers who usually have a smaller down payment and may even have less than otherwise acceptable credit according to the lender’s standards.

Basically, FHA is almost “co-signing” the loan for you. That is not 100% accurate, but it may help paint the picture for you.

Many people also falsely believe that FHA loans are only for first time home buyers . You don't have to a first time buyer, but it must be a primary residence. That means previous home owners can use FHA financing also.

Also many first time buyer programs, define a first time home buyer as someone who has not been on title to a property in the last 3 years. (Every program is different, but this is a very common definition of the term.)

People also don't realize that FHA loans are NOT only for people with low income. There are no income restrictions for these loans. However, there are maximum loan amounts meaning that depending on where in the country the property is located, there will be a maximum amount FHA is willing to let someone borrow to purchase a home that specific area.

Some FHA Guidelines to know:

• According toFHA loan requirements a minimum 3.5% down payment from the Buyer is necessary. This can also be paid by a family member on the buyer’s behalf in the form of a gift.

• They will also allow a seller to pay up to 6% of the buyer’s closing costs and/or prepaid escrow items (prepaid taxes, prepaid interest, discount points, etc).

• FHA will require the property owner occupied and it will need to be “habitable” prior to closing. This is a good thing, but depending on the FHA appraiser that is appraising to property that will even include minor things like having a working stove and possibly refrigerator which can become a headache if the property is a foreclosure and has no appliances. Appliances are minor items and this can be frustrating when the appraisal puts a halt to the purchase over minor things like this.

• FHA loans will also require Mortgage Insurance for the loan. The upfront mortgage insurance amount is between 1.5%-2.25%. There is also a monthly amount paid which is roughly .5% per year until the loan reaches 78% LTV.

• Condo Purchasers need to also be aware that FHA has to approve any condo complex they finance in and there are certain requirements that need to be met. Some condo complexes are on an FHA approved list of condo complexes. Every condo complex must be approved by FHA for them to guarantee a loan in the complex. It saves time during the loan process to see whether or not the complex has been approved by FHA, or if not, will the complex meet FHA's requirements.

For example, FHA loan requirements currently say that at least 51% of the owners in the complex to be owner occupants and NOT investors, that there is no more than 15% of the owners in the complex who are past due on maintenance fees, etc.

Essential FHA Refinancing Guidelines to know...

The Federal Housing Administration (FHA) facilitates federal government insured purchase loans via a federal government screened and sanctioned number of lenders. One may use an FHA mortgage to re-finance a current mortgage, to be able to decrease the interest charged, or get equity currently tied up in the home. The refinancing procedure of an FHA mortgage isn't much different from that of traditional mortgages. The particular procedure might differ from one particular loan company to another but you will find common guidelines which are applicable for most lenders.

FHA re-financing could be an excellent re-financing choice for home owners wanting to decrease their home loan interest charges, because this will enable them to save a lot more money over the term of the loan. Because the mortgage is guaranteed through the federal government, in the event of borrower default, home loan companies are subjected to significantly lesser risk, and may therefore provide much better interest rates to consumers. The federal govt guaranteeing the mortgage also means that consumers that can only provide a smaller down payment, or who have a "less than perfect", credit rating may still be eligible for an FHA mortgage, or an FHA re-finance of a present mortgage.

Home owners with FHA loans have the choice of either re-financing with yet another FHA mortgage, or with any traditional property loan. Home owners that might want to re-finance their current FHA mortgage using a new FHA mortgage, might be qualified for an FHA streamline refinance. An FHA streamline refinance can help with a substantial reduction in the amount of paperwork needed with the refinancing process, and therefore result in reduced fees for closing the loan.

Note:The Federal housing administration streamline re-finance isn't always available to everybody who already has an FHA mortgage. You will find numerous qualifications that a consumer will have to satisfy prior to being approved for a streamline re-finance such as:

-The original home loan will have to have been backed by the Federal housing administration

-Monthly payments on the original home loan need to be up to date

-Significantly reduced monthly payments need to be the end result with the re-financing

-No cash back is permitted

The other FHA re-finance choice may be the full FHA re-finance, which takes 2 types: the Cash Out loan and also the No Cash Out loan. Cash out mortgages permit individuals to re-finance their current FHA home loan with the limit set at the present maximum value of the home. When the home owner refinances their house for more than the current mortgage on the house, then they may use the additional money for any purchases, or investment of their desire. Whether it's a home, brand new furniture, schooling, a holiday, or the reduction of their current financial obligations.

No cash-out, as the term suggests, doesn't result in any money for the consumer. This kind of re-finance may be the option that's typically utilized when a consumer merely wants to obtain reduced interest rates of their home loan. When it comes to the full FHA re-finance the following variables will establish the homeowner's ability to qualify:

-The applicant's present credit history, and any late payments present on their credit report

-The structural and visual condition of the home

-If the house is currently occupied or not

-The present standing with the home owner's current home loan from FHA

-The present value of the residence on the open market.

FHA refinancing is really a excellent way to have monthly payments reduced for a lot of individuals who meet the criteria. You will find other criteria to be conscious of so getting in touch with somebody that is an expert in FHA re-financing is really a great strategy prior to getting started.

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