Problems With Fha Buyers
When you go to sell your home, you hope to get lots of offers on your home from well-qualified buyers. But as you go into the sale, you will need to determine if you are interested in receiving all types of offers, including those backed by FHA loans.
For those that are not familiar with the term FHA stands for Federal Housing Administration. FHA is an agency with The US Department of Housing and Urban Development.
If you are selling a home, it is important that you understand the potential issues that can arise when you are dealing with FHA loans, because there can be problems.
Knowing the risks beforehand can help you determine if getting an offer from a buyer with FHA financing is really worth your time and energy.
I want to make one thing very clear about FHA loans. For almost thirty years, I have been a Holliston Mass Real Estate agent who has dealt with buyers using FHA financing.
For the most part FHA loans are not problematic. There are times, however, where FHA loans can be more of an issue than conventional financing for home sellers.
Below you will see a review of five circumstances where an FHA loan could become a problem for a home seller. By going into a sale with your eyes wide open you will be better equipped to make a smart decision.
More than likely your home sale will go through without a hitch, even if you sell to someone receiving an FHA loan. But there is the possibility that something can go wrong when selling to these buyers, including:
Fha Loan Down Payments: What First
Buying a house is an expensive venture. It might seem impossible, especially for people who have no significant savings. But thanks to programs like the FHA loan, buying a property has become less complicated and more possible.
Know exactly what you can afford before you search for homes.
If you plan to buy your first house soon and are looking into applying for a mortgage through this option, you need to know that you are still required to pay a down payment. Here is everything you need to know about the process.
What Are The Types Of Fha Loans
The FHA offers a variety of loan options, from fairly standard purchase loans to products designed to meet highly specific needs. Here’s an overview of FHA loans commonly used to buy a house:
FHA Loan Type
Can be used to make improvements that make the home more energy-efficient.
The home must be professionally assessed to qualify.
Improvements must be deemed cost-effective.
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The Beginnings Of The Fha
In 1934, the United States was starting to recover from the Great Depression, and around one in four people found themselves renting their homes instead of buying them. The Federal Housing Administration was established to get more people owning their homes quicker.
In 1934, getting a home mortgage was a difficult process as credit standards tightened in response to the stock market crash of 1929 & the ongoing great depression. The individual who wanted to obtain the home loan had to pay up to 50% of the loan’s cost as a down-payment. Additionally, the mortgages usually came with five-year balloon payment terms. This would be a hard loan to obtain today, and it was nearly impossible by 1934’s standards.
The government wanted to increase the number of people who owned their homes. To do this, they introduced the FHA loan program. The government believed that the more people who owned their homes, the more stable neighborhoods would be, and the quicker the economy would improve.
The FHA loan program came with its Mortgage Insurance Premium program, and this program insured lenders against any ‘bad’ loans. Once the FHA program caught on, people saw mortgage rates dropping, the requirements dropped, and the traditional five-year mortgage was replaced with 15 and 30-year terms. Today, the FHA is the biggest mortgage lender in the world.
Fha Benefits For Seniors
FHA loans can be great for seniors because they generally offer lower interest rates, lower down payments, approve lower credit scores, and sometimes cover closing costs. Fannie Mae and Freddie Mac both offer retirement fund annuitization procedures that require lenders to divide 70% of the value of a borrower’s fund over 360 or 180 months of the loan’s terms. This could significantly boost the amount of income in the senior’s 401k account. Not all mortgage companies offer this product, so many sure you ask your loan officer if this is something available to you. The AARP website has great information about all of the special programs for seniors, click here for more info.
- No appraisal required
FHA Streamline 5/1 Adjustable Rate Refinance Mortgage:
- FHA 5/1 ARM establishes a lower initial interest rate for the first five years, then the market determines your rate
- Adjustable Rate Mortgages typically have lower interest rates than fixed rate loans
- Useful if you plan on selling your home in the near future.
Other FHA Loan Considerations
For FHA loans, typically the property being financed is to be your primary residence and the loans cant be used for investment or rental properties.; However, eligible residences include semi-detached homes. townhouses, row houses, and certain condominiums.
Have more questions on FHA loans?; Take a look at our FHA vs Conventionalpage.
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Can I Refinance An Fha Loan
Yes. You can refinance an FHA loan to reduce or eliminate mortgage insurance, increase the size of your loan, or reduce or change your interest rate. Learn more at:
Still have questions? Read more about everything you need to know about FHA loans.
Fha Loans In Nc And Sc
Are you looking for an FHA loan in North Carolina or South Carolina? Dash Home Loans offers FHA loans for qualified home buyers throughout the Carolinas.;
FHA loans, which are backed by the Federal Housing Administration , may help qualify for a home if you do not meet other requirements. Theyre ideal for individuals and families with low to moderate income and less than perfect credit scores.;
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Can You Apply For An Fha Loan More Than Once
There’s good news and there’s bad news here: FHA loans aren’t limited to first-time home buyers, and there’s no restriction on how many times you can take out an FHA loan in your lifetime.
However, because these loans are for primary residences only, you generally can’t have more than one at a time. There are some exceptions, however, such as if you’re relocating for an employment-related reason or if you’re permanently vacating a jointly owned property .
Down Payment Assistance In 2021
Down payment assistance programs make the mortgage process more affordable for eligible applicants who are interested in purchasing a home but need financial help to do so. Money is usually provided in the form of a non-repayable grant, a forgivable loan, or a low interest loan. Homebuyer education courses may be required.
Typically, a property being purchased must serve as the applicants primary residence and must be located within a specific city, county, or state. It may also need to fall within a program’s maximum purchase price limits. Income limits may apply, and will look something like this :
- 1 person household: $39,050
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Condos Must Be Approved By The Fha To Sell
Selling a condominium to an FHA loan recipient can also present difficulties, as both the individual condo and the condo project must be be approved for FHA financing. As you can imagine, it can sometimes be troublesome to meet both of these requirements.
You will need to make sure that both your own condo and your entire community will meet the standards of the FHA before you attempt to sell to an FHA loan recipient. Keep in mind, many condos and condo projects do not meet these requirements.
The FHA is looking for financial stability in the condo project, which is demonstrated by a number of different metrics. Some of these requirements include:
- No more than 50% of the property is used for commercial space.
- No more than 15% of unites can be in arrears more than 60 days.
- At least 50% of units must be sold prior to endorsement.
- No more than 50% of units can be rentals or investor owned.
- No more than 50% concentration of FHA loans.
These are only a portion of the requirements for FHA approval, so it is important that you do your research to make sure that you want to sell to FHA buyers. Trying to sell a condo in a project that does not meet minimum requirements is likely to be frustrating if you do not do your homework first.
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You Need To Show Consistent Income
There are no income or salary requirements or limits to qualify for an FHA mortgage, but youll need to show steady earnings.
Pay stubs and consistent tax returns are important when you apply. FHA lenders want to make sure you have worked in the same field of work for at least a couple of years. Consistent work for a year or more with the same employer helps, too.
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Apply Online For An Fha Loan
You apply for an FHA loan the same way you might apply for most mortgages. At Assurance Financial, you can apply online or by speaking with a local loan officer. As with any loan, you must show you have the credit score needed for the loan, the money for the down payment and proof of income.
In addition, FHA loans have further requirements. For example, your down payment must come from savings, a down payment grant or a gift from family.
What Are The Downsides Of An Fha Loan
A major drawback of FHA loans is the high cost of FHA mortgage insurance, which must be paid for the life of the loan if you put the minimum 3.5% down. FHA county loan limits also curtail your buying power since theyre set at 35% below conforming conventional loan limits in most counties in the U.S.;
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Fha Loans And Credit Score
There are a lot of factors that determine your , including:
- The type of credit you have
- Whether you pay your bills on time
- The amount you owe on your credit cards
- How much new and recent credit youve taken on
If you have a higher score, you might be able to qualify with a higher debt-to-income ratio, or DTI. DTI refers to the percentage of your monthly gross income that goes toward paying debts. Your DTI is your total monthly debt payments divided by your monthly gross income . This figure is expressed as a percentage.
To determine your own DTI ratio, divide your debts by your monthly gross income. For example, if your debts, which include your student loans and car loan, reach $2,000 per month and your income is $8,000 per month, your DTI is 25%.
The lower your DTI, the better off youll be. If you do happen to have a higher DTI, you could still qualify for an FHA loan if you have a higher credit score.
The FHA states that your monthly mortgage payment should be no more than 31% of your monthly gross income and that your DTI should not exceed 43% of monthly gross income in certain circumstances if your loan is being manually underwritten. As noted above, if you have a higher credit score, you may be able to qualify with a higher DTI.
On Fha Loan Down Payments
One of the reasons the FHA loan is the preferred option of most first-time homebuyers is the small down payment it requires versus other loans. The typical down payment the Federal Housing Administration asks for is usually as low as 3.5 percent. In comparison, other loan providers could go as high as 20 percent of the total property value.
Here are the other details that you should know about it:
- Down Payment Rate: The down payment you need to provide depends on your credit score. If your credit score is 580 or higher, you need to prepare 3.5 percent of the total property value. However, should your credit score be lower than that, specifically between 500 to 579, do you still have a chance of getting approved? The only catch is that you need to afford to pay ten percent of the total property value as your down payment.
- Loan Provider: Note that the loan will not come from FHA. Instead, the loan will come from banks and other lenders that the Federal Housing Administration approves. The mortgage, however, would be insured under the FHA, helping you get your application approved faster.
- Options for Down Payments: Your down payment money can come from anywhere except the following: home builders, sellers, real estate agents or brokers, FHA loan down payment assistance, and anyone planning to sell the home you are eyeing.
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How To Find An Fha Lender And Apply For An Fha Loan
FHA borrowers get their home loans from FHA-approved lenders, which can have different rates, costs and underwriting standards even for the same loan. FHA loans are available through many sources, from the biggest banks and credit unions to community banks and independent mortgage lenders.
Applying for an FHA loan requires a few key steps:
- Know your budget. Before you submit an application for an FHA loan, youll want to know how much you can afford to spend on a home. Consider your current income, expenses and savings, and use Bankrates mortgage calculator to estimate your monthly payments based on different home prices and different sizes of down payment.
- Compile your documents. Applying to borrow a large chunk of money means handing over a complete look under the hood of your finances. Before you apply for an FHA loan, have all these documents ready to go: two years of tax returns; two recent pay stubs; your drivers license; and full statements of your assets and any other places where you hold money).
- Compare your offers.Getting preapproved with multiple lenders is helpful so you can compare different rates and terms to make sure youre getting the best deal.
Mortgage Insurance Is Required For An Fha Loan
You knew there had to be a catch, and here it is: Because an FHA loan does not have the strict standards of a conventional loan, it requires two kinds of mortgage insurance premiums: one is paid in full upfront – or, it can be financed into the mortgage – and the other is a monthly payment. Also, FHA loans require that the house meet certain conditions and must be appraised by an FHA-approved appraiser.
Upfront mortgage insurance premium Appropriately named, this is a one-time upfront monthly premium payment, which means borrowers will pay a premium of 1.75% of the home loan, regardless of their credit score. Example: $300,000 loan x 1.75% = $5,250. This sum can be paid upfront at closing as part of the settlement charges or can be rolled into the mortgage.
Annual MIP ;Called an annual premium, this is actually a monthly charge that will be figured into your mortgage payment. The amount of the mortgage insurance premium is a percentage of the loan amount, based on the borrowers loan-to-value ratio, loan size, and length of loan:
For;example, the annual premium on a $300,000 loan with term of 30 years and LTV less than 95 percent ;would be $2,400:;;$300,000 x 0.80% = $2,400.;To figure out the monthly payment, divide $2,400 by 12 months = $200. So, the;monthly insurance premium would be $200;per month.
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The Dash Home Loans Process
Getting a home loan is often a stressful process, especially when most mortgage lenders work with a middleman who you never meet.
Dash simplifies the process for you by cutting out the middleman. With our team, the process of getting an FHA loan is very easy. Our Mortgage Coaches will work with you to prequalify you for these loans, going to bat for you as your advocate with the underwriters who review your application. Well work closely with you to ensure you meet all FHA loan requirements, including completing the necessary application and all required paperwork.
And if you dont qualify for an FHA loan? Well tell you immediately and work with you to find another option that meets your needs.
Ready to get started? Contact our team.
Let’s get started
Why Use An Fha Loan
An FHA loan can be an option to consider if you cant qualify for a traditional mortgage due to poor credit history or; insufficient funds for a larger down payment. Homes can be purchased with as little as 3.5% down, as opposed to the 20% recommended for conventional mortgages.;
While its a good idea to save up for a 20% down payment before buying a home if you can, the FHA loan does allow a path for first-time homebuyers to buy a home sooner than theyd otherwise be able to.;
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