Strategies for an FHA Mortgage

The Federal Housing Administration is a government agency formed to help land owners maintain their homes. The FHA insures loans, which makes it easier for banks. In turn other federally initiated things, such as the Federal National Mortgage Association, purchase FHA-insured loans, freeing funds up banks can make more loans. The FHA has a set of instructions that have to be followed to qualify for its own programs.

Down Payment

One of the benefits of an FHA loan is the down payment. Borrowers can take out a loan for 96.5% of the value of the house, leaving just a 3.5 percent down payment for them to create. With a standard down payment being 20 percent for a loan which isn’t FHA insured, this enables a lot more people to qualify for a house mortgage.

Maximum Loan Limits

Because the function of the FHA is to provide loans to homeowners who want help–people with low and moderate incomes–caps were put on loans which reflect median regional house worth. Caps are a low of $271,000 in several regions of the Southeast and Midwest into a high of over $700,000 in places like San Francisco and New York.

Debt-to-Income Ratios

The total monthly obligations on mortgage interest and principal, taxes, and insurance, together known as PITI, can’t be more than 31% of your gross income for you to qualify for an FHA-insured loan. Additionally, your total monthly debt obligations, including PITIcredit cards, credit cards, auto loans and student loans, can’t exceed 43 percent of your gross yearly income. Higher ratios are offered on energy-efficient homes.

Credit Limitations

A credit rating over 620 will qualify you for an automatic application process for an FHA-insured loan. Scores under 620 are allowed but examined on a case-by-case foundation. In case you’ve gone through a Chapter 13 bankruptcy, you need to wait a minumum of one year prior to applying for an FHA-insured loan. Those filing a Chapter 7 bankruptcy has to wait at least two years. Three years, and has to wait. If you are delinquent on any federal loans such as student loans or taxes, you won’t qualify.

Other Requirements

The property you are purchasing have to undergo an appraisal which meets FHA criteria. All seller concessions–which is, credits, gifts or other incentives that the vendor is providing as part of their contract–must be divulged to the appraiser. If the property you are purchasing is a condominium, the complex has to be approved for FHA-insured loans. When a termite inspection shows active infestation, then it has to be treated prior to sale.

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