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FHA Mortgages

Most lenders are approved to originate loans through the Department of Housing and Urban Development’s (HUD) FHA program. These programs offer the homebuyer the ability to purchase a home with a very low down payment. The lending guidelines are less restrictive on these programs, when comparing it to a traditional conventional mortgage program. Because of this, individuals with less then perfect credit or limited funds to work with have an avenue for mortgage financing.

Maximum Mortgage Amount - Loan limits are based on type of home (1 family, 2 family, 3 family or 4 family) and by the location of the property. HUD sets mortgage limits per MSA’s (metropolitan statistic areas). In many high priced areas, loan amounts in excess of $700,000 are available. See the chart below for these limits, or speak to your local loan. (hud link for mtg limit)

Income Limits - There is not any income restrictions for this type of financing.

First Time Homebuyers - You do not have to be a first time homebuyer to apply for an FHA loan. The only restriction is that an individual cannot have more then one FHA loan at a time (there are situations that would allow more then one FHA mortgage. If you are a move up buyer and your present home has an FHA mortgage, the home will need to be sold or refinanced.

Property Restrictions - Most 1 to 4 family residential homes, condos that meet FHA criteria, patio homes, retirement homes and new construction houses are eligible for this financing. If you are looking for a condo, we strongly advice you to confirm with your lender that the site meets FHA guidelines before you make an offer to purchase.

Down Payment Requirements - FHA requires a down payment of at least 3½% down. This is addition to closing costs. The down payment can come from the borrower’s own assets, a gift or a loan from a relative or close friend, a grant from a Government Agency or non profit organization, or funds borrowed against a real asset ( unsecured loans and cash advances on credit cards are not acceptable).

Seller Contribution - You can structure your offer to purchase with a request for the seller to pay closing costs on your behalf. The seller can pay up to 6% of the sales price, applied towards your closing costs and prepaid. If the closing costs are less then the 6%, the seller is limited to the actual amount.

Credit Guidelines - Very liberal. HUD doesn’t set a minimal credit score. However, most lenders want to see a credit score of 580 or better. Scores under 580 might be acceptable, depending on the reasons why the scores are so low, and the down payment on the home. Bankruptcies are acceptable, as long as two years have past since the date of discharge, if the bankruptcy was a chapter 7, or one year has past since entering into a chapter 13 bankruptcy.

Cosigners - If you do not have enough income on the books to qualify for the loan, but have a family member that will co-sign the mortgage, you might still be able to purchase the home. In most cases, co-signers are acceptable on this program. 

Mortgage Insurance - The FHA requires both an up front fee, which can be added onto the loan, as well as a monthly fee. The monthly fee is usually less then traditional conventional PMI. The amount of the up front fee varies, depending on the down payment and loan term. At the present time, credit scores do not affect these fees, but there is legislation that might change this.