If you’re starting to look for a house, then you know the importance of getting the right type of mortgage loan.
While I have mentioned all the different types of loans that you can get on my blog, you may still need some help deciding which type of mortgage loan is right for you.
Let’s start talking about the FHA mortgage loan.
Basics and Benefits of FHA Mortgage Loan
The first thing you should know about the FHA mortgage loan is that they’re backed by the Federal Housing Administration.
The particular program was created shortly after a series of foreclosures and defaults that occurred during the 1930s.
It is meant to make mortgage loans more accessible to a number of people, which is good news for anyone that’s looking into getting a home for the very first time.
The main benefit of the FHA mortgage loan is that you don’t have to put a huge down payment down in order to get the maximum amount of financing.
Typically, you need a 3.5% down payment for an FHA loan.
If you looked into similar conventional loans, you would find that you need sometimes a 20% down payment in order to get the loan.
Not only can you have more money in your pocket at the end of purchasing your house, but you can get this loan without a perfect credit score.
Those of you that have a lower credit score (near 500) will find that you can still be accepted by this program to finance the purchase of your house.
Since the prices of houses are changing, the San Diego FHA mortgage loan limits have been updated to match the rising prices.
From 2016 to 2019, there was a major increase in loan limits because of the dramatic increases in prices.
Unlike most mortgage loans, an FHA mortgage loan comes with two different types of mortgage of insurance.
This might be annoying to some, but it helps ensure that everyone is held accountable.
The first kind of insurance that you are required to pay is called the upfront mortgage insurance premium (UMIP).
If you couldn’t already tell, you’re meant to pay this insurance when you close on the house.
However, you don’t have to pay this right away.
You can make an agreement to roll the UMIP payment into the mortgage so that you’re paying it off as you go as well.
Regardless of what your credit score looks like, your UMIP payment will be 1.75% of the base loan amount.
The second mortgage insurance is a monthly payment that is known simply as the MIP.
This payment will depend on several different factors.
The lower MIP rates will apply to loans that have a term up to 15 years.
The higher rates will apply to those that are over 15 years.
However, you may be able to get out of your MIP payments earlier than you think.
If your LTV ratio (loan to value; a measurement of your loan amount divided by either the price you paid for the house or the appraised value of the house) is below 90%, then you will only have to make MIP payments for 11 years.
This applies both to loans with terms up to 15 years and loans with terms greater than 15 years.
In the past, the FHA used to get rid of MIP payments if the LTV ratio was 78% or lower, but that isn’t the case anymore.
What You Need for A Loan
Even though getting an FHA loan is easier than getting a conventional loan, there is still a lot of information and requirements that you will have to investigate to make sure that you truly qualify.
- The residence that you are looking to move into must be your primary residence.
- The residence will be appraised by an FHA-approved appraiser. (If the house does not mean the standards of the FHA, then the seller might be asked to make the required repairs. In the case that the seller refuses to make the repairs, the only option you would have is to pay for the repairs upon closing. The funds will be held in an escrow account until the repairs are completed.)
- When your lender looks at your income and the payments, the ratio of mortgage payment (plus HOA fees, taxes, and insurance) should be less than 31% of your income. A lender may approve you with a percentage of 40%, depending on the circumstances. This is a front-end ratio.
- They will also look at the back-end ratio. This includes all of the mortgage in addition to your credit card payments, car payments, student loans, etc. This ratio should be 43% or lower. You may be approved with a percentage as high as 50%, but this will be justified by the lender.
- Your credit must be 580 to receive maximum financing with the smallest down payment of 3.5%. If your credit falls in the 500-579 range, and your LTV is at max 90%, then you will have a minimum payment of 10%. Each lender will go on a case-by-case basis for credit scores.
- You must be two years out of bankruptcy with re-established good credit. If there were extenuating circumstances, then the limit can be moved to one year.
- You must be three years out of foreclosure, as well. Again, if there were extenuating circumstances, then you might qualify for an exception. You may not get an exception if you were unable to sell your home when you had to move to another area.
Documentation and Information
When you begin considering an FHA loan, this list of information is everything that the lender will need to determine whether or not you can get the FHA loan.
- The address of your place of residence (all of them within the last two years)
- Social Security number
- The addresses and names of your past employers (within the last two years)
- Your gross monthly salary from your current job(s)
- Information for your checking and savings accounts
- Information about any and all open loans you have
- Information for any other real estate that you own
- The approximate value of your personal property
- Your W-2 forms and current check stubs (from the past two years)
- Your personal tax returns from the past two years
- Current income statement and a business balance sheet for individuals that are self-employed.
- (For veterans) A Certificate of Eligibility and DD-214
While conventional loans will have more competitive rates, the FHA loan is ideal for those people that don’t have the money or credit score to qualify for the conventional loans.
If you’re a first-time buyer, then this loan is especially ideal for you.
As a mortgage loan officer, I can help you get into an appropriate FHA loan for a property that you find my website.
If you’re trying to figure out whether an FHA loan might be right for you, then you can always use our handy tool to see the most up to date rates in the San Diego area.
Regardless of what you choose, I’m here to help make sure that you get the best mortgage loan for your dream home.
What do you think?
Leave a comment below - or, call/text me at (760) 297-4539
Your FHA Insider,