The Federal Housing Administration (FHA) was established in
1934, as a way to help increase U.S. homeownership post the ”Great Depression”.
- you are unable to qualify for a different type of loan,
whether it’s because of your debt to income ratio, or specific information in
your credit history
- you are looking at purchasing a multi unit property, but
have a limited down payment available
You shouldn’t get an FHA mortgage if:
- you only have the 3.5% available down payment – check your
USDA loan eligibility for 100% financing, or try to save up a little extra and
get a Conventional loan (3% down payment options now available for first time
homebuyers)
- your loan officer told you the up front mortgage insurance
is refundable when you refinance! Unfortunately, there are many people that are
misinformed. This official HUD link explains the circumstances in which a
refund is issued.
FHA mortgage loans have good things going for them, such as
the lower interest rate and easy streamline refinance option. While the FHA
adds the cost of the up front mortgage insurance to the bill, the annual
mortgage insurance will usually favor borrowers with credit scores under 680
(the private mortgage insurance required on Conventional loans is generally
higher as the credit score is lower).
At the time, only 4 in 10 households owned homes, and people
were mostly renting – not a big surprise since you couldn’t get a loan without
a 50% down payment!
In 1965, FHA became a part of the Department of Housing and
Urban Development (HUD). FHA is the only government agency that operates
entirely from self-generated income, and costs the taxpayers nothing – it is
funded by the FHA mortgage insurance that FHA homebuyers and homeowners pay.
How does the Florida FHA Mortgage Loan work?
FHA does not provide actual funding on your Florida FHA mortgage loan. The FHA
guarantees the FHA mortgage in case of borrower default, so that FHA mortgage lenders can extend
credit with confidence.
To provide this kind of guarantee, Florida FHA Mortgage Lenders require
two types of mortgage insurance:
1. An UpFront FHA
Mortgage Insurance Premium of 1.75% of the loan balance
For example, on a $250,000 home, your upfront mortgage
insurance would be $4,375.
The good news is that you don’t have to pay this premium up
front. It can be rolled into your principal balance without affecting your loan
to value and minimum required downpayment of 3.5%.
The bad news is that there are no refunds on it, except when
refinancing into another FHA mortgage. Even then, the more time passes, the less your refund is,
and no refund is due after 5 years. See FHA Streamline Refinance for more details,
and this HUD official link.
2. An Annual FHA Mortgage Insurance Premium, paid monthly
and added to your payment
The fee schedule is as follows for loan amounts lower than
$625,500, and it is expressed as a percentage of your loan amount:
·
15 year FHA Mortgage loan terms with loan-to-values
over 90% : 0.70%
·
15 year FHA Mortgage loan terms with
loan-to-values under 90% : 0.45 %
·
30 year FHA Mortgage loan terms with
loan-to-values over 95% : 0.85%
·
30 year FHA Mortgage loan terms with
loan-to-values under 95% : 0.80%
·
For FHA Mortgage loan amounts higher that
$625,500 (allowable in “high cost areas”), the fee schedule is:
·
30 year loan terms with FHA Mortgage loan to
values over 95% : 1.5%
·
30 year FHA Mortgage loan terms with loan to
values under 95% : 1%
·
15 year FHA Mortgage loan terms with loan to
values under 90% : 0.70%
·
15 year FHA Mortgage loan terms with loan to
values over 90% : 0.95%
Note that the annual FHA mortgage insurance used to
get canceled on its own once certain conditions were met:
30 year loans : Annual MIP was automatically canceled once
the loan reached 78% loan-to-value, and annual MIP was paid for at least 60
months.
15 year loans: Annual MIP was automatically canceled once
the loan reached 78% loan-to-value. There was no requirement for MIP to be paid
for at least 60 months.
For all FHA mortgages issued after June 1st, 2013:
If the loan to value is grater than 90%, then the mortgage
insurance is in place for the life of the loan
If the loan to value is 90% or less, than the mortgage
insurance is in place for 11 years.
Apply Now for an FHA loan
Florida FHA mortgage loan program property eligibility
Florida FHA
mortgage loans can be used to finance almost any type of home: single
family residences, approved condominiums, PUDs and multi-unit properties. Florida
Manufactured homes are also an option with some lenders.
However, FHA does impose loan limit restrictions. Below are
the Florida 2016 FHA loan limits for the
different counties. For the most updated FHA loan limits, click here - you only
need to select the state and press SEND.
Regardless of the number of units, the minimum downpayment
required by an FHA loan is 3.5% of your loan amount.
This feature makes the FHA loan extremely attractive for
borrowers who wish to produce side income by renting out any additional units.
Keep in mind that FHA loans are only allowed on primary residences, so living
in one of the property units is a must.
Also, if you are looking at purchasing a triplex or
fourplex, make sure you have enough funds saved up to cover 3 months of full
mortgage payments on the property – this is a requirement.
The loan terms currently available on FHA mortgage loans are
the 30 and 15 year fixed loans, or the 5 year ARM (Adjustable Rate Mortgage).
I highly recommend considering the lower ARM loan interest
if you plan on refinancing out of your FHA loan in the next 5 years.
Generally, FHA
Mortgage Lenders will not insure more than one mortgage for any borrower.
But there are exceptions:
RELOCATION – If you are relocating in an area not within
reasonable commuting distance from your current residence, you may obtain
another FHA insured mortgage – without needing to sell your current FHA insured
property. Reasonable commuting distance is generally regarded as 50 miles or
more.
FAMILY SIZE INCREASE – You may be permitted to obtain
another FHA insured mortgage loan if the number of legal dependents has
increased to where your present home no longer meets your family’s needs.
However, the outstanding balance on your current FHA insured property must be
at 75% loan to value or less (excluding any up front mortgage insurance premium
rolled in).
VACATING JOINTLY OWNED PROPERTY – for example, in the case
of a divorce.
NON-OCCUPYING CO-BORROWER – if you co-signed an FHA loan for
a family member, but you do not reside on that property, you can obtain your
own FHA insured loan.
In this section, I will address some important issues, such
as: derogatory credit, qualifying ratios, gift funds and interested party
contributions. Feedback and questions are highly encouraged, so please send
your e-mails with comments or questions to dana@utloanofficer.com.
Derogatory Information:
Foreclosure / Deed-in-lieu of foreclosure- A 3 year waiting
period must be met at the date of the application.
If the foreclosed property was a Conventional mortgage, the
seasoning period begins the date the foreclosure deed was signed and notarized
removing the owner from title.
If the foreclosed property was Government Insured, the
seasoning requirement began on the date that the claim was actually paid (I can
help you find out the specific date, as it is not directly available)
Chapter 7 Bankruptcy – eligible 24 months after the
discharge date, on the condition that good credit has been re-established. Less
than 24 months, but no less than 12 is also acceptable if extreme circumstances
can be proven, and not likely to re-occur.
Chapter 13 Bankruptcy – eligible after 12 months of on-time
payment history, and with bankruptcy court approval.
A history of Foreclosure or Bankruptcy within the past 7 years will get you denied
when applying for any high balance FHA mortgage loan. High balance is anything
over the conforming loan limits – see my article on Florida / Colorado Conventional Loans.
Short Sale-A borrower is not eligible to purchase an FHA
insured mortgage is the short sale was pursued simply to take advantage of
declining market conditions, or to purchase a similar or superior property
within commuting distance (at a reduced price compared to current market
values).
Immediate eligibility - if the borrower was current on the mortgage payments
and installment agreements at the time of the short sale (12 month history
prior to short sale will be analyzed).
3 year waiting period – if the borrower was in default on
the mortgage payments at the time of the short sale – unless extreme
circumstances can be documented and unlikely to re-occur.
Modified / Restructured Loans- A rate/term refinance of a
modified/restructured loan is eligible provided that the loan is not delinquent
and there is no history of late payments in the past 12 months. The current
lender must also provide a letter stating they will not file a deficiency
judgement.
Collections / Charge-Offs- All medical collections and
charge off accounts are excluded and do not require resolution (yay!).
Collections equaling to or grater than $2,000 will either be
required to be paid at closing, or have a repayment plan setup with the minimum
payment included in the debt-to-income ratios (underwriter may calculate the
monthly payment due using 5% of the outstanding loan balance).
Letters of explanation for unpaid collection accounts are
required.
Major Adverse Credit- Judgements must be paid off unless the
borrower has an agreement in place with the creditor, requiring on-time monthly
payments. Documentation supporting 3 months of payments must be provided, along
with a letter of explanation for the judgement.
Federal tax liens may remain unpaid provided any IRS tax
lien on the property is subordinated to the FHA-insured mortgage.
Current mortgages must have a history of on time payments
for the past 12 months.
FHA Mortgage Re-entering the workplace
If a borrower has an employment gap larger than 6 months in
the past two years, then they must have at least 6 months on the current job.
If the borrower is returning to work after an extended
absence, his/her income is considered effective if they have been employed at
that job for more than 6 months prior, or if the prolonged absence was due to
raising children.
Rental income- Rental income is acceptable if shown on the
prior two years tax returns. If the property was acquired since the last tax
return filing, a current lease or rental agreement must be provided.
FHA Mortgage Income from overtime, commission and tips
Borrower must have a two year history of receiving this type
of income.
FHA Mortgage Part time income
A two year history of receiving it is required to show
stability. If seasonal income, two year history plus some documentation that
the borrower reasonably expects to be rehired next season (usually provided by
employer).
Part time income can get complicated when borrowers have
multiple part time jobs and no full time employment. It is common for nurses to
work part time for two different hospitals for example, in which case having at
least a 1 year history with each employer helps show stability, and a recent
job change can be a deal breaker.
FHA Mortgage Qualifying ratios
FHA qualifying ratios are generally 31/43 with 31
representing the percentage of your gross monthly income that should be
allocated to the new mortgage payment, and 43 being the percentage of total
debt reported on your credit (new house payment included).
If compensating factors are present, your total amount of
debt can be as high as 55% and still allow you to get an approval. Compensating
factors can be various factors. A few examples are: your ability to save and be
conservative in using credit, having a larger downpayment, or having
significant assets. A minimal increase from current housing expenses can also
be a compensating factor.
Residual income guidelines can also be used to justify a
higher debt to income ratio. VA loans are already successfully using this
method in getting borrowers approved – see my article on VA loans for more information
on the residual income.
FHA Mortgage For Non-Occupant Co-Borrowers
Non-occupant co-borrowers are allowed on FHA purchase and
rate/term refinance transactions on 1 unit properties. If the property has more
than 1 unit, then the maximum loan to value is 75% (meaning a 25% down payment
is required) unless the non-occupant co-borrower is related by blood, marriage
or law.
Non-occupant co-borrowers or co-signer cannot be added on a
cash-out transaction.
FHA Mortgage Gift funds
Gift funds are allowed as long as proper documentation can
be provided. The entire borrower downpayment can come from a gift.
Gifted equity is allowed only from family members.
FHA Mortgage Non-arms length transactions
A non-arms length transaction or Identity of Interest
transaction is defined as a direct relationship between any of the parties to
the transaction, including: buyer, seller, employer, lender, broker, appraiser
etc.
Under no circumstance will a non-arms length transaction be
allowed on a short sale.
Otherwise, the maximum loan to value is 85% with the minimum
downpayment coming from the borrowers own funds. Maximum financing is allowed
with the following exceptions:
- the subject property is currently occupied by a family
member of the borrower
- the borrower has been renting the subject property from
the family member for at least 6 months and can provide written evidence
- an employee of the builder is purchasing a new home or
model home as a principal residence
- corporate transfer (involving the employer provided
housing).
Note that if the only relationship between the seller and
the buyer is a landlord/tenant relationship, the transaction would not be
considered identity of interest, and maximum financing is permitted.
A non-arms length transaction may not be used to bail out a
family member or any other owner with an established relationship to the borrower
from a delinquent mortgage.
Interested party contributions
Seller/Interested party contributions exceeding 6% must be subtracted
from the sales price.
Is the Florida FHA mortgage loan right for you?
This is a question that only you can answer. If it is the
only option to get you into a new home, then it is the best option.
No comments:
Post a Comment