Since 1934, the Federal Housing Administration (FHA) has been helping Americans qualify for mortgages so they can become homeowners. Now part of the US Department of Housing and Urban Development, the FHA currently backs nearly 5 million mortgages. Could one of these mortgages put you on the road to homeownership? The following answers to some frequently asked questions about FHA loans might help you decide.
Frequently Asked Questions About FHA Loans
Who can be helped by an FHA loan?
FHA loans are ideal for people with less-than-perfect credit histories. This often means people who simply have not had the chance to establish much of a credit history, but it can also mean people who have had some credit problems in the past.
How can the FHA help with buying a home?
The FHA insures mortgages, giving lenders the confidence to make loans to people who otherwise would not qualify. In addition to making it easier to get approval, FHA-backing also means that down payment requirements are lower than they would be for most ordinary mortgages.
What size down payment do I need for an FHA mortgage?
You can get an FHA mortgage with a down payment of as low as 3.5 percent.
Do I apply to the FHA for one of these mortgages?
No. The FHA does not make loans directly, but instead works through a wide variety of FHA-approved lenders. This gives you the flexibility to shop around for the best deal.
What is mortgage insurance, and why do I need both that and homeowners insurance?
Mortgage insurance is different from homeowners insurance. Mortgage insurance insures the lender against the possibility that the borrower will default on the loan. This is the backing that gives lenders the confidence to approve loans to people with less than ideal credit backgrounds. On FHA loans, borrowers pay for mortgage insurance with an upfront payment and then an ongoing addition to their regular monthly payments.
I have a bankruptcy in my past. Can I still qualify for an FHA loan?
Bankruptcy does not generally disqualify applicants from FHA loans, as long as they have established responsible payment habits since the bankruptcy. Generally, that takes two years after the discharge of a Chapter 7 bankruptcy, and one year after the payout period for a chapter 13 bankruptcy.
I'm still paying off my student loan. Will this affect my ability to qualify for an FHA loan?
That depends on your situation, but having a student loan outstanding should not necessarily prevent you from getting an FHA loan. It is important that you be up-to-date on your loan payments, but beyond that the lender will look at your income in relation to your student loan payments and other financial obligations to determine whether you have the ability to repay the proposed mortgage.
Are there limits to how much I can borrow in an FHA loan?
Yes, and those limits vary depending on where you live. In extremely high-cost markets, the FHA loan limit can be as high as $625,500 (as of 1/1/2015), but in most markets it is much less. Check with an FHA lender in your area to see what the limit is in the area where you are looking to buy.
Will I be able to refinance an FHA loan?
Yes, in fact the FHA offers a program known as Streamline Refinancing which minimizes the documentation needed to refinance FHA loans if the mortgage is up to date and the refinancing would either reduce monthly payments or change the loan from adjustable to fixed interest rates.
Do you have more detailed questions about how an FHA loan might help with your situation? Talk to an FHA lender today, and start getting answers that could help put you on the road to home ownership.