What is an FHA Home Loan?

FHA Home Loans – Opening Doors for Many Homeowners

Ready to buy your first home? Working with limited income or money for a down payment? A government-insured Federal Housing Administration (FHA) home loan could be the right solution for you. FHA loans have been helping people buy homes, whether the first or the fourth, since 1934.

What are the Benefits of an FHA Loan?

FHA home loan programs typically help first-time homebuyers, seniors or others with limits on what they can afford. FHA home loans offer:

• A low 3.5% down payment
• Flexible income and credit requirements
• Low closing costs

Are There Limits to an FHA Loan?

Some FHA home loans have a loan value cap based on location, but keep in mind that the typical FHA candidate already has financial limits. That makes this less of an issue. The program has no minimum credit score, although the lender might, and the chances of approval get better as the scores get higher.

FHA Loans Come Many Varieties and May Fit Your Needs

FHA Fixed Rate Home Loans

There are two types of fixed FHA mortgage rates (offer the same rate throughout the life of the loan):

• 30-year fixed rate FHA
• 15-year fixed rate FHA

Both options offer the same interest rate stability, but the 15-year term has higher monthly payments, giving you a faster way to build up home equity. You can use this higher equity as a down payment when you move to your next house.

FHA Adjustable-Rate Mortgages

The 15-year alternative also gives you greater power to move. With a higher monthly payment, you build up more equity in the house sooner. This means you can use proceeds from a house sale to make a bigger down payment on a future purchase.

An FHA adjustable rate mortgage (ARM) lets homeowners pay a low introductory interest rate for the first few years, then move to a new home before it adjusts, possibly upwards. If you know this is a starter home that you will leave in a few short years, then an ARM could make sense for you. PrimeLending offers the 5-year hybrid ARM (fixed for the first 5 years, change annually after that, annual cap of 2 percentage point and a lifetime cap of 6 percentage points.)

FHA “Back to Work” home loans

After the economy crashed in 2008, even homeowners with a responsible payment record suddenly experienced foreclosures, short sells or other actions that harmed their credit. The Federal Housing Administration (FHA) “Back to Work” home loan program is designed to return these former homeowners to the housing market faster than previously possible.

For buyers returning to the market after a foreclosure or short sale during the housing crisis, often referred to as “Boomerang Buyers,” that meet the program’s eligibility guidelines, the FHA has waived its 3-year waiting period for a foreclosure and 2-year waiting period for a bankruptcy. In the most favorable scenario, these customers can make a one-year turnaround on buying a new home, although longer time periods are normal.

Qualifying for FHA “Back to Work” home loans

The program is designed to help homeowners with good payment records prior to the recession. To qualify, the borrower must have experienced a temporary job or income loss caused by the economic downturn that led to:

• a 20% drop of household income for six months or more
• a credit-impairing event such as:
  1. bankruptcy
  2. foreclosure
  3. deed-in-lieu
  4. short sale
  5. delinquencies
  6. collections
  7. judgments

The program rewards homeowners who have successfully regained their financial footing. The borrower must recover from the job or income loss and:

• Re-build a credit history, with a
  1. 12-month on-time rental history
  2. Satisfactory record with other creditors
• Meet current FHA loan requirements
• Complete HUD-approved housing counseling

The FHA “Back to Work” program covers purchases from Aug. 15, 2013 until Sept. 30, 2016. It is not guaranteed to extend beyond that time.