FHA Home Loan Basics
It’s easy to understand why many people looking for a new home and are turning to FHA insured loan programs. Because FHA Loans are insured by the Federal Housing Administration homebuyers have an easier time qualifying for a mortgage. Those who typically benefit most by an FHA loan are first-time home buyers and those who have less than perfect credit.
The links to the right are articles aimed at helping you better understand FHA loans. With this information you can make a more informed decision on whether these government insured loans are right for you and your family.
New Changes in FHA Loans
In response to the growing housing situation in the United States the loan limits for FHA Loans has been temporarily raised. Depending on where you live you might find it even easier to qualify for a FHA loan.
As an FHA Loan specialist I can help you understand any new changes to the FHA loan program. We’re here to create a customized solution that works best for you and your family. To learn more call us at 516-206-0000 or contact us via email.
FHA Loan Checklist
FHA Loan Common Questions
|When you’re applying for an FHA loan the following list of documents will help expedite the process. We can help you understand any part of the FHA loan process so don’t hesitate to contact us with any questions.
|Check out our list of common questions related to FHA mortgages. Check out our list of common questions related to FHA mortgages.
What is the FHA?
What makes a FHA insured mortgage beneficial?
Where can I find FHA forms and other literature?
What is the FHA loan limit in my area?
Can I pay an FHA loan off early?
Can a FHA insured loan help me lower energy costs?
Is there a FHA program to help me refinance my loan?
Can I refinance a fixed rate FHA loan?
What is the recommended debt-to-income ratio for FHA loans?
Are FHA loans assumable?
Will I have to pay mortgage insurance with an FHA loan?
Can I get a “fixer-upper” of a home with a FHA mortgage?
FHA Loan Benefits
|Qualifying for a home mortgage loan can be difficult, near impossible without a sizable down payment and a moderate credit report. If this describes you and you financial position, an FHA loan may be for you! There are fewer restrictions for FHA loan qualification in comparison to a standard mortgage loan. Qualifications for an FHA loan are:
These are the basic qualifications for an FHA loan through Nikitas Kouimanis, as you can see FHA loans can be to qualify for. To learn more contact us or apply online to get the process started.
How FHA Loans Work
|FHA insured mortgages are some of the best kinds of mortgages available. This is because they can help more people into the home buying market. Check out the list below to understand some of the most basic benefits of an FHA mortgage.
Easier to Qualify for – because they’re backed by the federal government lenders are more likely to give you the kind of loan that you need.
Low Down Payment – FHA insured mortgages only require a 3% down-payment which makes it easier for people to own homes. Additionally the 3% can come in the form of gifts, unlike many other loan programs.
Lower Credit Borrowers Qualify – because FHA insured loans are backed by the government those with a poor credit history have an easier time getting this kind of loan.
Better Interest Rates – with the backing of the government these loans typically have a better interest rate than most traditional mortgage loans.
Better Home Stability – the FHA has programs designed to help homeowners keep their homes during hard times. The will work with you to help your home from falling into foreclosure. Always try to work out problems with your lender before the situation becomes dire.
FHA Loan Basics
FHA Loan programs are government loans that most people can qualify for. I’m Nikitas Kouimanis and I am your Manhattan, Brooklyn, and Long Island FHA Loan expert. Purchasing a home with an FHA Loan has many advantages over conventional loans. Also if you’ve purchased a home with an FHA Loan, there are also some great FHA refinance options that can help you take advantage of record low rates. I will break down the basics of what options are available to you with an FHA Loan….Owning a home doesn’t have to be as hard as it seems. With down payments of 20% for conventional loans, it can be very hard. If high down payments and difficult financial requirements have stopped you before, then you need to take a look at an FHA Loan. The main advantage of an FHA Loan is that you can own a home with a 3.5% down payment. Besides the lower down payment the credit requirements are also lower than conventional loans and the closing cost are lower as well. There is also no private mortgage insurance, which makes your monthly payments lower. Loan limits to purchase a home in Manhattan, Brooklyn, and Long Island are currently $729,750, the highest possible limit you’ll find anywhere in the country.
If you are a 1st time home buyer the FHA is a great loan for you. Why pay rent and pay off your landlord’s mortgage, when you can own your own home and make those monthly payments to build up your own equity? Unlike other easy to qualify for government loans like the USDA loan, which not available in our area, and the VA loan which is only for Veterans. The FHA Loan program is something that anyone can use, and can be used anywhere in Manhattan, Brooklyn, and Long Island.
I look forward to working with you and showing you that owning a home doesn’t have be impossible, not when there is a program like the FHA loan that makes it easier. Use my free online application to see how much you qualify for.
If you’ve purchase a home with a FHA loan and haven’t looked into refinancing it, you could be wasting thousands of dollars each year. Interest rates are currently the lowest they’ve been in decades. FHA refinance programs make it very easy to refinance. I can show you without any commitment how much you could be saving. There are two FHA refinance products, the FHA Streamline refinance and the FHA Cash-out.
To use a FHA Streamline refinance you needed to have purchased your home with a FHA loan. It’s considered streamlined because it lets you move down to a lower interest rate on your current home loan quickly and usually without an appraisal. It also has less paperwork which means there is less work for me, so you pay less. The Streamline is designed to lower your monthly mortgage payments by going to a lower rate, not to receive any cash back. If you are looking to spend less money each month this is the program for you. Rates are at levels not seen in decades and probably won’t stay this low much longer. If you haven’t thought of about refinancing, let me show you how much you could save. You could be pleasantly surprised.
With an FHA Cash-Out refinance it lets you pull cash out of your home. If you need to pay off debts, remodel your home or just have some extra spending cash this is the program for you. To get the most cash out of your home it is important to build up as much equity as you can. There are more qualifications requirements then a Streamline, like stricter income and employment verifications, credit checks among others. While rates are at record lows, now is the time to see if you can pull some cash out of your home.
If you want to see how much you could save with a FHA Streamline or how much cash you could get with a FHA Cash-out please apply right on my site for a free analysis.
The Mortgage Loan Process
Pre Qualification starts the loan process. Once a lender has gathered information about a borrower’s income and debts, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations a borrower should get prequalified for each loan type the borrower may qualify for.
In attempting to approve homebuyers for the type and amount of mortgage they want, mortgage companies look at two key factors. First, the borrower’s ability to repay the loan and, second, the borrower’s willingness to repay the loan.
Ability to repay the mortgage is verified by your current employment and total income. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years.
The borrower’s willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the Credit Report and/or your rental payment history.
It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point could make up for the weak one. Mortgage companies could not stay in business if they did not generate loan business, so it is in everyone’s best interest to see that you qualify.
Mortgage Programs and Rates
To properly analyze a mortgage program, the borrower needs to think about how long he plans to keep the loan. If you plan to sell the house in a few years, an adjustable or balloon loan may make more sense. If you plan to keep the house for a longer period, a fixed loan may be more suitable.
With so many programs from which to choose, each with different rates, points and fees, shopping for a loan can be time consuming and frustrating. An experienced mortgage professional can evaluate a borrower’s situation and recommend the most suitable mortgage program, thus allowing the borrower to make an informed decision.
The application is the true start of the loan process and usually occurs between days one and five of the start of the loan process. With the aid of a mortgage professional, the borrower completes the application and provides all Required Documentation.
The various fees and closing cost estimates will have been discussed while examining the many mortgage programs and these costs will be verified by the Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL) which the borrower will receive within three days of the submission of the application to the lender.
Once the application has been submitted, the processing of the mortgage begins. The Processor orders the Credit Report, Appraisal and Title Report. The information on the application, such as bank deposits and payment histories, are then verified. Any credit derogatoriness, such as late payments, collections and/or judgments requires a written explanation. The processor examines the Appraisal and Title Report checking for property issues that may require further investigation. The entire mortgage package is then put together for submission to the lender.
If you are purchasing or refinancing your home, and you are salaried, you will need to provide the past two-years W-2s and one month of pay-stubs: OR, if you are self-employed you will need to provide the past two-years tax returns. If you own rental property you will need to provide Rental Agreements and the past two-year’ tax returns. If you wish to speed up the approval process, you should also provide the past three months’ bank, stock and mutual fund account statements. Provide the most recent copies of any stock brokerage or IRA/401k accounts that you might have.
If you are requesting cash-out, you will need a ‘Use of Proceeds’ letter of explanation. Provide a copy of the divorce decree if applicable. If you are not a US citizen, provide a copy of your green card (front and back), or if you are NOT a permanent resident provide your H-1 or L-1 visa.
If you are applying for a Home Equity Loan you will need, in addition to the above documents, to provide a copy of your first mortgage note and deed of trust. These items will normally be found in your mortgage closing documents.
Most people applying for a home mortgage need not worry about the effects of their credit history during the mortgage process. However, you can be better prepared if you get a copy of your Credit Report before you apply for your mortgage. That way, you can take steps to correct any negatives before making your application.
A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you paid back the companies you have borrowed money from, or how you have met other financial obligations. There are five categories of information on a credit profile:
Identifying Information…Employment Information…Credit Information…Public Record Information…Inquiries
NOT included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income.
If you have had credit problems, be prepared to discuss them honestly with a mortgage professional who will assist you in writing your ‘Letter of Explanation.’ Knowledgeable mortgage professionals know there can be legitimate reasons for credit problems, such as unemployment, illness, or other financial difficulties. If you had problems that have been corrected (reestablishment of credit), and your payments have been on time for a year or more, your credit may be considered satisfactory.
The mortgage industry tends to create its own language, and credit rating is no different. BC mortgage lending gets its name from the grading of one’s credit based on such things as payment history, amount of debt payments, bankruptcies, equity position, credit scores, etc. Credit scoring is a statistical method of assessing the credit risk of a mortgage application. The score looks at the following items: past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of inquiries.
By now, most people have heard of credit scoring. The most common score (now the most common terminology for credit scoring) is called the FICO score. This score was developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW), and (TransUnion).
FICO scores are simply repository scores meaning they ONLY consider the information contained in a person’s credit file. They DO NOT consider a person’s income, savings or down payment amount. Credit scores are based on five factors: 35% of the score is based on payment history, 30% on the amount owed, 15% on how long you have had credit, 10% percent on new credit being sought, and 10% on the types of credit you have. The scores are useful in directing applications to specific loan programs and to set levels of underwriting such as Streamline, Traditional or Second Review. However, they are not the final word regarding the type of program you will qualify for or your interest rate.
Many people in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the mortgage process for the past few years (since 1999); however, the FICO scores have been used since the late 1950’s by retail merchants, credit card companies, insurance companies and banks for consumer lending. The data from large scoring projects, such as large mortgage portfolios, demonstrate their predictive quality and that the scores do work.
The following items are some of the ways that you can improve your credit score:
Pay your bills on time….Keep Balances low on credit cards….Limit your credit accounts to what you really need. Accounts that are no longer needed should be formally cancelled since zero balance accounts can still count against you….Check that your credit report information is accurate….Be conservative in applying for credit and make sure that your credit is only checked when necessary.
A borrower with a score of 680 and above is considered an A+ borrower. A loan with this score will be put through an ‘automated basic computerized underwriting’ system and be completed within minutes. Borrowers in this category qualify for the lowest interest rates and their loan can close in a couple of days.
A score below 680 but above 620 may indicate underwriters will take a closer look in determining potential risk. Supplemental documentation may be required before final approval. Borrowers with this credit score may still obtain ‘A’ pricing, but the loan may take several days longer to close.
Borrowers with credit scores below 620 are not normally locked into the best rate and terms offered. This loan type usually goes to ‘sub-prime’ lenders. The loan terms and conditions are less attractive with these loan types and more time is needed to find the borrower the best rates.
All things being equal, when you have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision. Various combinations are allowed when determining your grade, but the worst-case scenario will push your grade to a lower credit grade. Late mortgage payments and Bankruptcies/Foreclosures are the most important. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal a problem. Since an indication of a ‘willingness to pay’ is important, several late payments in the same time period are better than random lates.
An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights to be appraised. The appraiser does not create value; the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value.
Using three common approaches, which are all derived from the market, derives the opinion, or estimate of value. The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence, and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other ‘bench mark’ properties (comps) of similar size, quality and location that have recently sold to determine value. The INCOME APPROACH is used in the appraisal of rental properties and has little use in the valuation of single family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces.
Once the processor has put together a complete package with all verifications and documentation, the file is sent to the lender. The underwriter is responsible for determining whether the package is deemed an acceptable loan. If more information is needed, the loan is put into ‘suspense’ and the borrower is contacted to supply more information and/or documentation. If the loan is acceptable as submitted, the loan is put into an ‘approved’ status.
Once the loan is approved; the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.
At the closing the borrower should:
Bring a cashier’s check for your down payment and closing costs if required. Personal checks are normally not accepted and if they are they will delay the closing until the check clears your bank….Review the final loan documents. Make sure that the interest rate and loan terms are what you agreed upon. Also, verify that the names and address on the loan documents are accurate….Sign the loan documents….Bring identification and proof of insurance.
After the documents are signed, the closing attorney returns the documents to the lender who examines them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the closing attorney arranges for the mortgage note and deed of trust to be recorded at the county recorder’s office. Once the mortgage has been recorded, the closing attorney then prints the final settlement costs on the HUD-1 Settlement Form. Final disbursements are then made.