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Last updated on November 29th, 2021 at 03:09 pm
What is FHA?
A mortgage that is insured by the Federal Housing Administration is termed as an FHA loan. This insurance insures mortgages issued by banks, credit unions, non-banks, and lenders.
This mortgage is issued only by FHA approved lender.
It is most popular among First time home buyers who have some credit challenge and their credit score is as low as 580 or has fewer savings for an initial down payment which is a minimum of 3.5% compared to other conventional loans.
Why FHA?
National Housing Act of 1934 had created the FHA to reduce and eliminate the bleeding due to foreclosures and to make owning a home more economical, so people with low to moderate-income can also afford a house.
Types of FHA Loans
- Traditional Mortgage
- Home Equity Conversion Mortgage
- 203(k) Mortgage Program
- Energy Efficient Mortgage Program
- Section 245(a) Loan
FHA Loan Limits
No matter which type of FHA loan you are seeking, there will be limits on the mortgage amount. These limits vary from county to county.
FHA loan upper limits in some counties are $331,760 and the upper limit in special exception county is $765,600 because the construction cost is high.
How to Make Payment
You make 2 types of premium payments for FHA loans.
- An upfront Mortgage Insurance Premium (UFMIP) which is 1.75% of your base loan amount. This has to be paid at the time of closing. These payments are used to make mortgage payments in case you default on the loan. It is deposited into an escrow account set up by the U.S. Treasury Department.
- Annual MIP which you pay monthly till the life of your loan. This payment has to be paid in addition to the UFMIP and it is usually 0.85% of the loan amount.
FHA Loan Relief
If you are facing a genuine financial challenge like the current times of COVID-19 scenario you may be eligible for loan relief. Hardships such as :
Loss of income or
Increase in living expenses or
If you are having a hard time making your monthly mortgage payments.
The FHA Home Affordable Modification Program (HAMP) will help you by lowering your monthly payment to an affordable level.
Bankruptcy and Foreclosure Waiting Periods
Depending on the different bankruptcy filing chapters the waiting period varies.
- From your chapter 7 bankruptcy discharge date your wait period is for 2 years for getting an FHA loan.
- If you have filed for chapter 13 bankruptcy, the waiting period is 3 to 5 years. However, if you have paid 12 months of plan payments and if the court approves to your FHA loan request for buying a house then you can obtain an FHA before the completion of your plan.
- If you have gone through foreclosure then you might qualify for a new FHA mortgage loan only after waiting for three years.
However, If your bankruptcy, foreclosure, was due to mitigating circumstances such as a job loss, medical condition, or death in the family, that led to financial hardship then the mortgage underwriter will determine whether you qualify by looking for good credit and payment history before the events that led to financial hardship and you may be eligible for an FHA in 12 months time.
Requirements for Applying for an FHA loan
- You must have at least the previous two years of tax returns. Two years with the same employer, if you have switched employers you must be in the same industry
- You must not have any unpaid taxes or tax liens.
- Photo ID.
- Bank statements.
- Pay stubs.
- Social Security number.
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