A wonderful article i read in "The Reading Eagle" sheds some light on Federal Housing Administration Home Loans in terms everyone can understand.
The FHA, created in 1934, does not directly lend money to buyers or set interest rates. It ensures mortgages through the US Department of Housing and Urban Development, making it easier to qualify - since lenders know that if a borrower defaults, they will still receive payment.
Mike White - Senior Vice President at VIST Financial says that now is the time to take advantage of the government insured lending program, which offers perhaps the lowest down payments available.
Though used most often by low-to-moderate income buyers, there are no income limit qualifications. "The Process is virtually identical to what we refer to as a conforming (regular) loan." "The biggest reason for using FHA financing in today's enviroment is that it allows someone to put as little as 3.5% down. So it's a program specifically designed for people who have limited funds for down payment."
Prepayment penalties are never enforced on FHA-insured loans, and borrowers can refinance at any time without penalty.
To qualify for an FHA Loan, buyers are evaluated in 5 areas...
- MUST HAVE A STEADY EMPLOYMENT RECORD; 2 YEARS WITH THE SAME EMPLOYER IS IDEAL.
- INCOME MUST BE SUFFICIENT TO HANDLE ANY OBLIGATIONS.
- ASSETS MUST SHOW THAT BORROWERS HAVE SUFFICIENT FUNDS FOR THE DOWN PAYMENT AND CLOSING COSTS.
- COLLATERAL MUST SHOW THAT THE VALUE AND CONDITION OF THE PROPERTY ARE BOTH ACCEPTABLE.
- A CREDIT REPORT MUST BE "AT A LEVEL THAT SHOWS A WILLINGNESS TO REPAY DEBT, BASED ON HOW YOU'VE HANDELED OBLIGATIONS IN THE PAST.
FHA loans' appeal is two-fold. In addition to offering a low down payment, the program is more lenient on credit standards than conventional financing.
White went on to say - " If you have an average credit score, FHA may be a more attractive way to go. Conventional Financing has gotten into risk based pricing, which means that as your credit score decreases, the cost of your financing goes up. FHA has not gotten into that"
The best way to begin the process of buying a home with an FHA loan is seeking pre-approval. Borrowers will then complete an application with an approved FHA lender, where they will need to provide contact information of employers for the past 2 years, names and account numbers of all assets accounts, and residency addresses for the past two years.
FHA LOAN HOUSE APPRAISAL BASICS
The Dept of Housing and Urban Development requires appraisals for all FHA insured mortgages, meauring value to make sure is worth it's selling price. Appraisals also protect lenders by making sure homes are safe and sanitary. If repairs are required, buyers receive a list from their lender, and the seller is typically responsible for overseeing any necessary work.
Among The FHA's Requirement
There must be ventilation in crawl spaces and attics.
All windows and doors must have weather stripping.
Ceilings and Outward facing walls must be insulated, as must be the air conditioning, heating and ventilation pipes and ducts.
All cracks and openings on the interior and exterior of the home must be sealed.
Each Bedroom must have a smoke detector.
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