FHA Home Loan
The Federal Housing Administration (FHA) was created by the The National Housing Act of 1934 to operate loan insurance programs to increase new home construction and reduce unemployment. FHA does not make loans to borrowers, but does provide insurance to the lending institution that protects the money lent to a borrower.
An FHA home loan can be used for the following transactions:
- Purchase – Finance the purchase of an existing home or new construction home.
- Streamline – Refinance an existing FHA home loan without income documentation or an appraisal.
- Rate & Term Refinance – Refinance any current mortgage loan(s) that were used to purchase a home that provides a financial benefit by lowering the interest rate or monthly payment. Second mortgage loans that are less than one year old and were not used to purchase the property can be subordinated to a new FHA home loan. Borrowers are unable to receive more than $500 cash back at closing. Texas residents may not receive any cash back at closing.
- Cash out Refinance – Utilize the equity in your home to consolidate debt, make home improvements or to receive cash for any need. A cash out refinance is not available for Texas residents.
Loan amounts for an FHA home loan vary by county in which the property is located in.
A down payment is required on an FHA home loan. The minimum down payment is 3.5%, but some FHA loan programs may require as little as $100. A buyer may also put down as much money as desired.
Regardless of the down payment amount, mortgage insurance is required for the life of the FHA loan.
Monthly mortgage insurance is required on any FHA home loan for the life of the loan regardless of the loan-to-value (LTV). Choosing an FHA loan will require the payment of both an upfront and a monthly mortgage insurance premium. The FHA upfront mortgage insurance premium is typically financed into the loan amount.
An FHA home loan may be used for the purchase or refinance of the following property types:
- Single family residence – one unit, attached or detached including town homes
- Multi-unit – two to four units
- Mixed Use Property – condominiums & PUDs where the commercial space does not exceed 49%
- Condominiums – FHA approved or warrantable
- Planned Unit Developments – attached or detached
- Leaseholds – lease extends ten years past mortgage maturity and is rented at market rate
Credit requirements for an FHA home loan are less stringent than other loan programs. All borrowers on an application must have at least a 580 FICO score with two or more credit bureaus.
A property must be owner-occupied, except non-occupant co-borrowers are allowed.