Archive for May, 2009

Once you decide to buy a new home through FHA, you must know all the important facts about FHA loan requirements. This will help you not only in making successful decisions but also in successfully closing the process. In order to provide you with an overview of FHA loan requirements, the following facts will be discussed:

I. Eligibility requirements for FHA loan

II. Different types of mortgages

III. Finding a lender

IV. Costs associated with borrowing loan.

V. Documentation

Eligibility: Meeting FHA loan requirements

Once you decided to buy a new home and even searched a newly built house, which is on sale. Now you want to borrow. But do you know whether you meet the FHA loan requirements or not? This is because your decision to buy a new house is based on the outcome of your application, therefore it is necessary for you to know whether you are eligible to borrow or not.

In order to find out your status, the best step is to use mortgage calculators, offered without any cost by most of the lenders as well as Ginnie Mae, to calculate the amount that you can afford to spend on a home. This will give you a fair idea of the amount that you should borrow. You can also take help any real estate broker or HUD sponsored housing counseling agencies which can help you in calculating the amount of loan that can be offered to you.

Another option of checking whether you are eligible to borrow loans or not is to get yourself pre-qualified for a loan. Pre-qualified, as the words themselves explain, you fill-out an application for a mortgage before you actually search any home. This way you can very clearly calculate the amount that you can afford to spend. Moreover, in such cases, lenders check you eligibility and, if found suitable, offer you a loan for a certain time period. After that period you need to re-apply.

Type of mortgages – Which is the best

Broadly, there are two types of mortgages, fixed rate mortgage and adjustable rate mortgage (ARM). As the name itself defines, in case of a fixed rate mortgage, the rate of interest remains the same for the complete mortgage which is usually 30 years. The best advantage of this is that you always know the amount that you have to pay and therefore can always plan ahead.

In ARM, the rate of interest and monthly installments fluctuate. Usually, in the beginning, interest rate and loan amount remain lower than that of fixed rate, which can be changed both way-up or down- almost twice a year. However, the advantage of ARM is that the initial rate of interest remains lower, therefore, you can afford to buy an expensive home, if you think your income would also increase with the increase in interest rate, in the future.

Apart from the above, there are several other government sponsored mortgage programs such as VA programs. However, discuss with your property advisor before planning to buy any mortgage.

Finding a lender for FHA Loan:

You can borrow home loan from banks, housing finance institutions, private mortgage companies, savings & loans associations, credit union, different state government lenders etc. However, always remember that the way you plan and shop for buying your household item or any consumer product, you should buy any loan with similar planning and shopping strategies. This is because, the way price and features of any consumer product vary the rate of interest, loan amount and loan features also vary from lender to lender. This is important because even a minor decrease in interest rate can save you several thousand dollars.

You can search for suitable lenders through your newspaper, FHA list of approved lender or through search engines. Also, remember that the complete process takes 3-6 weeks time. Therefore plan the whole process according to your own needs.

Costs associated with borrowing loan:

In addition to the FHA loan down payment and monthly mortgage payment, you have to pay closing costs after the settlement. The minimum down payment for FHA loans is 3% and the monthly payment depends upon various factors such as amount of loan, rate of interest, amount of down payment, duration of loans etc. Closing costs is the cost associated with the paperwork and comes to approximately 3-4% of the costs of the property. It covers various fees charged by the lender and other document processing expense. Lenders usually give an estimate of the closing cost.

FHA loan Requirements: Documentation

You can save a lot of time and visit to your lender if you are fully prepared in terms of the required documents. You need to attach the following documents along with your loan application:

• 1. Social security number of the applicant
• 2. Account statement of your savings account for last 6-month
• 3. Proof of any assets or investments
• 4. Your latest salary certificate showing details of your monthly income
• 5. Details of credit card and average monthly outstanding balance
• 6. Details of any of your existing loans and outstanding balance
• 7. Copy of your Income Tax statement for last 2 years and
• 8. Contact details of any references.

Share on Facebook

Even if you meet all FHA loan requirements, you need to shop, compare and negotiate terms with different lenders in order to get the best loan terms. Infact, shopping, comparing and negotiating are the only ways to get the best loan. Therefore, if you meet all the requirements of FHA loan, you should follow the below given steps in order to shop, compare and negotiate the best loan terms.

Collect information from multiple lenders/brokers:

A mortgage is a product, like a car or a TV; therefore its price and features/terms may vary from lender to lender. Consequently, different lenders may offer you different cost and terms. Therefore, you should collect information from several lenders, so that you can choose the best price. Also, collect information from different types of lending institutions such as banks, housing finance institutions, credit unions etc.

Moreover, you can also get a mortgage through mortgage broker. The advantage of dealing with a broker is that a broker is always associated with multiple lenders therefore; any broker can offer you wider choice of loan products and terms. However, this is not necessary and a broker may offer you products of only one lender. The disadvantage of dealing with a broker is that the commission given to brokers, in addition to lenders origination fees that may increase your cost.

Find out complete cost information:

Simply knowing the amount of monthly mortgage payment or rate of interest to be charged and meeting all FHA loan requirements will not help you in choosing the best term. Try to find all costs associated with the loan, even the hidden cost. Also, remember your objective is to compare the terms of different lenders. Therefore you should collect information from different lenders/brokers on the basis of same information i.e. you should ask for information about the same amount of loan, type of loan, duration of loan etc so that you can compare terms of different lenders. Infact, you should ask for information on all items mentioned in the below given list.

Compare terms of different lenders/brokers and choose few best terms:

Once you collect all information from different lenders/brokers, you can very easily shortlist the offers that suits to your individual needs. This can also be done on the basis of the amount of downpayment that you intend to make, the monthly amount that you can pay comfortable as mortgage payment, payment duration etc.

Negotiate the Best Deal:

Remember that the offers of lenders/brokers keep on changing even if it is for the same loan amount to different people on the same day. Similarly, any terms offered to you on a given day may differ from terms offered to you on some other day, even if it is for the same loan amount and repayment duration. Therefore, there may be further scope of negotiation in order to get competitive rates.

Also, after comparing and choosing few of the best offers, you know what each lender has to offer. Now your job is to negotiate with each lender for a better deal than the deal offered to you earlier. You can also negotiate with a particular lender for a better deal than the one you can get from another lender.

Once, you have successfully negotiated the best term with a lender; get a written lock-in from the lender/broker. This lock-in should clearly mention the entire rates agreed upon, the period for which the lock-in is active and the number of points to be paid. You may have to pay certain fees such as a lock-in charge, which may be refundable at closing. The lock-in protects you from any increase in rate of interest during your application process.

Therefore, to conclude, simply meeting all FHA loan requirements is not the end, if you want to get the best deal, you have to shop around, compare and negotiate. Infact, to get the best deal, you should use the steps that usually take while purchasing any household, consumer or related product i.e. Shopping, Comparing and Negotiating.

Share on Facebook

What is an FHA loan?

First of all, ‘FHA Loan’ is a misnomer since, FHA never lends directly to any borrower. The loan is offered be lending companies/organizations/institutions such as housing finance companies, savings, loan associations, and banks. Therefore there should be no confusion that FHA offers any loan.

Now there are several reasons why FHA loans are becoming popular among first time home buyers. The first and most important reason is that it is easy for all to meet the FHA loan requirements. However, before discussing the causes of this popularity, let us first analyze the profile of first time home buyers, as follows:

Who are first time home buyers?

• 1. Young with little experience/newly married couple
• 2. Recently graduated college/recently joined employment.
• 3. Have regular employment
• 4. Have fixed income but little savings

These first time home buyers need a loan that:

• 1. Has an easy criterion to qualify
• 2. Asks for low down payment
• 3. Has low cost
• 4. Accepts less than perfect credit
• 5. To conclude the above, they need a loan that has flexible requirements such as FHA loan requirements.

The factors behind rising popularity and Key Features of FHA loans:

Therefore, any loan program that meets the above needs of first time home buyers would be highly popular and FHA loans exactly meet the specific requirements of first time home buyers. Moreover since FHA loans offer money not only to purchase a house but also to keep it. Therefore, FHA loans are becoming popular with first time buyers and have become a wise choice for most of the buyers. Infact, few of the key features of FHA loans, which enhance their popularity and usability for borrowers, are:

Meeting FHA loan requirements is easier: Usually, lenders have stringent lending criteria, which becomes very tough for most of the potential borrowers to qualify. However, it is much easier to qualify for FHA loans since mortgage insurance by FHA reduces risks of lenders, which in turn makes more than eager to offer loans to individuals and families.

Even Bad Credit is not a problem: In case of traditional loans, borrowers have to pay high cost, if they have poor or bad credit, which is not the case with FHA approved lenders. In case of FHA loans, even if you have foreclosure or bankruptcy, you can meet the requirements for FHA loans.

Low Downpayment – This is the most important attraction for first time home buyers. The downpayment for FHA loans is as low as 3% i.e. loans are offered up to 97%. Another attraction is that even the 3% down payment can be given by any of the family member, employer or charitable organization, which is not possible with conventional loans.

Cheap Loans: In most cases, FHA loans are cheaper than loans offered by traditional lenders. This is due to the reduced risk to lenders through mortgage insurance of loans by FHA.

FHA helps protect your home: In case of loans offered by other lenders, if you default in mortgage payments, there is only one solution-foreclosure, where as in case of FHA loans, foreclosure is the last solution.

Therefore, there are several factors behind the rising popularity if FHA loans. These factors influence the decisions of first time home buyers who in turn prefer FHA loan over many other conventional loans.

Share on Facebook

Introduction to FHA loans:

FHA loans have helped lots of Americans to become homeowners who could not afford to do so with conventional loans. FHA or the Federal Housing Administration insures the loans offered by FHA approved lenders to borrowers on both new and existing single and multi-family housing. However, one of the most important facts here is that FHA does not offer any loan directly to anyone; it rather insures the loans offered by private lenders who are approved by FHA. The mortgage insurance by FHA reduces the risk to lenders in offering loans to borrowers significantly and enhances the borrowing power of individual borrowers.

Key features of FHA Loans:

Lenders charge a higher rate of interest if the loan offered has any associated risk. Similarly if there is lower risk involved in offering any loan, the same lender charges lower rate of interest because of the lower risk or enhanced security of loan. In the same way, the loans offered by FHA approved lenders are insured by FHA which reduces the risk for lenders in offering loans. Therefore, these lenders pass on certain benefits to borrowers, which may be one or more of the following:

• 1. Low down payments
• 2. Low closing costs
• 3. Easy FHA Loan Requirements

FHA Loan Requirements: The eligibility criteria

In order to meet FHA mortgage loan requirements, you should have:

1. A permanent source of income e.g. through full-time and regular employment, with at least last two years in the same organization/employment

2. Proof of paying bills

3. Any long-term and running loan e.g. auto loans etc

4. Sufficient amount to pay as down payment

5. Sufficient monthly income and savings to pay the monthly mortgage along with other costs, if any, timely and regularly.

6. Any foreclosure should be at least 3 years old

7. Any bankruptcy should be at least 3 years old.

However, the actual requirements for FHA loans may vary from borrower to borrower and lender to lender. The above given conditions are an overview of common eligibility requirements to obtain an FHA Loan.

How do I know if I can get a loan?

The best strategy to check whether you can get the loan or not is to use any simple mortgage calculator available on the websites of lenders and calculate the amount you can pay as down payment and subsequently meet your broker or any reputed lender. Also, you can get assistance from housing counseling agencies approved by FHA. These counselors would help you evaluate your potential for loans. In addition, another method is to go to a lender and apply for a mortgage before searching for a home. This way, lenders can tell you how much you need to spend from your own.

Therefore, finally to conclude, since FHA loans are insured by FHA, the approved lenders have no risk in offering loans to different borrowers. Moreover since, these lenders have no risk, they even have lesser requirements so that you can meet the FHA loan requirements. Therefore, today it is very simple and easy to qualify for FHA mortgages. Even people with bad credit or those having previous bankruptcy or foreclosures are also eligible for FHA loans. Infact, through FHA loans, people with bad credit get an opportunity to improve their credit record.

Share on Facebook