FHA Loan Requirements

FHA loan requirements are generally more lenient than those of conventional lenders. The Federal Housing Administration is a government program administered by Housing and Urban Development (HUD) to help Americans who can't qualify for a conventional mortgage loan become homeowners.

FHA Loan Requirements: Required Income

There are no minimum FHA loan requirements for income to obtain an FHA mortgage loan, but you must demonstrate steady income for at least three years, and demonstrate that you've consistently paid your bills on time. FHA loan requirements allow seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family to qualify as income sources. FHA loan requirements also allow part-time pay, overtime, and bonus pay to count as income as long as they are steady.

FHA Loan Requirements: Debt-to-Income Ratio

The FHA allows you to use 29% of your income towards housing costs and at total of 41% towards housing expenses plus other long-term debt. Compare this with a conventional loan, which generally allows only 28% toward housing and 36% towards housing expenses plus other debt.

FHA Loan Requirements: Down Payment

FHA loan requirements specify that you have a down payment of at least 3% of the purchase price of the home, but this cash may be a gift or grant. Most affordable loan programs offered by private lenders require between a 3% - 5% down payment, with a minimum of 3% coming directly from the borrower's own funds.

FHA Loan Requirements: Credit Score

FHA loan requirements are generally more flexible than conventional lenders are in their qualifying guidelines. You can qualify for an FHA loan without a credit history. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.

FHA loan requirements do not include a requirement for the borrower to have good credit. In the case of bad credit, the FHA allows you to re-establish credit if two years have passed since a bankruptcy has been discharged and all judgements and tax liens have been paid, or if arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue. The FHA may also allow you to borrow once three years have passed since a foreclosure or a deed-in-lieu has been resolved.

An FHA loan is a federal assistance mortgage loan in the United States insured by the Federal Housing Administration. The loan may be issued by federally qualified lenders.

FHA loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers.

Over time, private mortgage insurance (PMI) companies came into play, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI insurance.

August 31, 2007, FHA added a new refinancing program called FHA-Secure to help borrowers hurt by the 2007 subprime mortgage financial crisis.

The History of FHA Loans

The National Housing Act of 1934 created the Federal Housing Administration (FHA), which was established primarily to increase home construction, reduce unemployment, and operate various loan insurance programs[2]. The FHA makes no loans, nor does it plan or build houses. As in the GI-loan program, the applicant for the loan must make arrangements with a lending institution. This financial organization then may ask if the borrower wants FHA insurance on the loan or may insist that the borrower apply for it. The federal government, through the Federal Housing Administration, investigates the applicant and, having decided that the risk is favorable, insures the lending institution against loss of principal in case the borrower fails to meet the terms and conditions of the mortgage. The borrower, who pays an insurance premium of one half of 1 percent on declining balances for the lender's protection, receives two benefits: a careful appraisal by an FHA inspector and a lower interest rate on the mortgage than the lender might have offered without the protection.

Until the latter half of the 1960s, the Federal Housing Administration served mainly as an insuring agency for loans made by private lenders. However, in recent years this role has been expanded as the agency became the administrator of interest rate subsidy and rent supplement programs. Important subsidy programs were established by the Housing and Urban Development Act of 1968.

In 1974 the Housing and Community Development Act was passed. Its provisions significantly altered federal involvement in a wide range of housing and community development activities. The new law made a variety of changes in FHA activities, although it did not involve (as had been proposed) a complete rewriting and consolidation of the National Housing Act. It did, however, include provisions relating to the lending and investment powers of federal savings and loan associations, the real estate lending authority of national banks, and the lending and depositary authority of federal credit unions.

Further changes occurred in the 1977 Housing and Community Development Act, which raised ceilings on single-family loan amounts for savings and loan association lending, federal agency purchases, FHA insurance, and security for Federal Home Loan Bank advances. In 1980 the Housing and Community Development Act was passed; it permitted negotiated interest rates on certain FHA loans and created a new FHA rental subsidy program for middle-income families.

On March 6, 2008 the "FHA Forward" program was initiated. This is the part of the stimulus package that President Bush had in place to raise the loan limits for FHA.

Source: Wikipedia

The FHA does not make loans. Rather, it insures loans made by private lenders. The first step in obtaining an FHA loan is to contact several lenders and/or mortgage brokers and ask them if they originate FHA loans. As each lender sets its own rates and terms, comparison shopping is important in this market.

Second, the potential lender assesses the prospective home buyer for risk. The analysis of one's debt to income ratio enables the buyer to know what type of home can be afforded based on monthly income and expenses and is one risk metric considered by the lender. Other factors, e.g. payment history on other debts, are considered and used to make decisions regarding eligibility and terms for a loan.

Section 251 insures home purchase or refinancing loans with interest rates that may increase or decrease over time, which enables consumers to purchase or refinance their home at a lower initial interest rate.

FHA's mortgage insurance programs help low- and moderate-income families become homeowners by lowering some of the costs of their mortgage loans. FHA mortgage insurance also encourages lenders to make loans to otherwise credit-worthy borrowers and projects that might not be able to meet conventional underwriting requirements, protecting the lender against loan default on mortgages for properties that meet certain minimum requirements -- including manufactured homes, single and multifamily properties, and some health-related facilities. The basic FHA mortgage insurance program is Mortgage Insurance for One- to Four-Family Homes (Section 203(b)).

The adjustable rate

FHA administers a number of programs, based on Section 203(b), that have special features. One of these programs, Section 251, insures adjustable rate mortgages (ARMs) which, particularly during periods when interest rates are low, enable borrowers to obtain mortgage financing that is more affordable by virtue of its lower initial interest rate. This interest rate is adjusted annually, based on market indices approved by FHA, and thus may increase or decrease over the term of the loan. In 2006 FHA received approval to allow hybrid ARMs, in which the interest is fixed for the first 3 or 5 years, and is then adjusted annually.

Source: Wikipedia

1. Age - you must be above the minimum age required to sign a mortgage in your state. There is no maximum age limit.

2. Citizenship - you are not required to be a US citizen, but you must be a permanent resident of the USA who is permitted to work in the US.

3. Social Security Number - you will require a valid Social Security Number; a Tax ID number is not sufficient.

4. You must have a 3% down payment (this will go up to 3.5% as of September 1, when the new legislation comes into effect), and you must be able to finance the closing costs of the loan.

5. The property in question must be a residential dwelling suitable to house 1-4 families.

6. The value of the property cannot exceed the allowable maximum for your area and the type of dwelling.

7. You will need to meet the lender's qualification requirements for a mortgage. The requirements for FHA loans are generally more lenient than standard mortgage qualification requirements.

8. Credit Score - you do not need to have a good credit score to obtain an FHA loan. FHA lenders cannot reject a borrower because you have no credit history. If you have declared bankruptcy in the past, or has a foreclosure, there will be some additional requirements before you can qualify for an FHA loan. Basically, you must have your affairs in order.

9. Income - there is no minimum or maximum income requirement for an FHA loan.

10. Debt-To-Income Ratio - you can use up to 29% of your income towards housing, and up to 41% of your income on the combination of housing plus all other long-term debt.

11. Down Payment - you will need a 3% down payment, but this can be in the form of a grant or gift.

12. Closing Costs - you will need to be able to pay the closing costs of the FHA loan, which will be higher than a standard loan. Usually, you will need an additional 2.5% of the value of the property.

FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) - which is part of HUD - insures the loan, so your lender can offer you a better deal.

* Low down payments
* Low closing costs
* Easy credit qualifying

What does FHA have for you?

Buying your first home?

FHA might be just what you need. Your down payment can be as low as 3% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.

Want a fixer-upper?

FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan.

Financial help for seniors

Are you 62 or older? Do you live in your home? Do you own it outright or have a low loan balance? If you can answer "yes" to all of these questions, then the FHA Reverse Mortgage might be right for you. It lets you convert a portion of your equity into cash.

Want to make your home more energy efficient?

You can include the costs of energy improvements into an FHA Energy-Efficient Mortgage.

How about manufactured housing and mobile homes?

Yes, FHA has financing for mobile homes and factory-built housing. We have two loan products - one for those who own the land that the home is on and another for mobile homes that are - or will be - located in mobile home parks.

Source: HUD Web Site

Washington, DC - The U.S. House of Representatives today passed H.R. 3221, one of the most important housing reforms in decades, by a vote of 272 to 152.

The bill, the American Housing Rescue and Foreclosure Prevention Act, represents the most comprehensive response yet to the American mortgage crisis, and will help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.

"Of the problems that were created by the reckless deregulation that led to the subprime crisis and the neglect of affordable housing that has marked Republican rule in Congress, this package of measures is the best response we could make. It cannot solve all of these deep rooted problems immediately but the bill does represent a mutually reinforcing set of approaches that will begin to diminish the problem," said House Financial Services Committee Chairman Barney Frank (D-MA). "This will begin to lay the groundwork for a turnaround in the housing market and hopefully in the broader economy as well."

"This bill contains the most significant expansion and improvement of tax programs designed to provide affordable housing for low and moderate-income individuals, since the inception of the low-income housing tax credit in 1986," said Ways and Means Committee Chairman Rangel (D-NY).

"First, the bill would expand and improve the low-income housing tax credit, which is the largest source of federal support for the construction and rehabilitation of affordable housing. Second, the bill increases volume limits on housing bonds to finance low-income rental housing and first-time homebuyers, while also providing states with greater flexibility on how to use those bonds efficiently. These improvements will go a long way to address the shortage of affordable housing options in our cities and towns."

"This housing rescue package will help address our nation's foreclosure crisis and improve our economy and financial markets. I am pleased that $4 billion of vital funding to help states and localities purchase and fix up abandoned and foreclosed homes is included. In addition, modernizing the Federal Housing Administration will provide many homebuyers in California access to safer loan products through FHA," said Financial Services Subcommittee on Housing and Community Opportunity Chairwoman Maxine Waters (D-MA).

"The tax provisions in this bill are an appropriate mix of incentives for home purchasers, owners, and renters, for builders, developers, and lenders. Quite simply, they help the housing and real estate industry re-gain their footing. And they offer struggling homeowners a life-line. This bill offers hope that if we can get this industry moving again and provide security for distressed homeowners, perhaps we can get the economy back on track," said Rep. Richard E. Neal, Chairman of the Ways and Means Subcommittee on Select Revenue Measures.

Financial Services Oversight and Investigations Subcommittee Chairman Melvin L. Watt (D-NC) said, "This could well be the most important legislation to impact housing, responsible credit and economic recovery that we have passed in the 16 years I have served in Congress. I wish we hadn't needed a crisis to get to this point but, unfortunately, necessity is more of a driving force than foresight."

H.R. 3221 will also shore up the housing market and ensure the availability of affordable home loans, strengthen neighborhoods hardest hit by the foreclosure crisis by providing resources to allow cities and states to buy up and rehabilitate foreclosed properties, expands homeownership opportunities for veterans and helps returning soldiers avoid foreclosure and stay in their home, provides tax breaks to spur home buying; and creates an Affordable Housing Trust Fund to boost the nation's stock of affordable rental housing in both rural and urban areas for low and very low-income individuals and families.

To stabilize the housing finance market, and make sure that affordable home loans continue to be available, H.R. 3221 also includes provisions to give necessary stand-by authority to the Treasury Department in the unlikely case that the GSEs require temporary federal financial intervention. This authority is the best way to boost market confidence in the GSEs and reduce the likelihood that the government would need to lend a hand.

Click here for a copy of the text of the bill.

Key Provisions in H.R. 3221, The American Housing Rescue & Foreclosure Prevention Act

FHA Housing Stabilization and Homeownership Retention Act

·Provides mortgage refinancing assistance to keep at least 400,000 families from losing their homes, to protect neighboring home values, and to help stabilize the housing market at no cost to American taxpayers.

·Expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government-insured mortgages they can afford to repay.

·Protects taxpayers by requiring lenders and homeowners to take responsibility. This is not a bailout; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal. In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.

·Contains critical protections for taxpayers' dollars, including higher refinancing fees that establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages.

·Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.

·According to CBO, this three-year program, starting October 1, 2008, will not cost taxpayers a dime, as it is more than paid for by using funds in the first few years from the Affordable Housing Trust Fund.

·Provides $180 million for financial counseling and legal assistance to help families stay in their homes.

Strengthening Regulations of the GSEs

·Puts a strong independent regulator in place with real teeth, with real responsibilities and powers so that Fannie Mae and Freddie Mac can safely and soundly work to provide our nation's families with affordable housing, as Democrats have been calling for since 2004.

·The new regulator will have enhanced authority to raise capital standards, set strict prudential standards, including internal controls, audits, and to enforce these new standards and promptly take corrective action. The new regulator will oversee, and can directly restrict, executive compensation at Fannie Mae and Freddie Mac.

·Raises the GSE loan limits for single family homes to create affordable mortgage loans for moderately priced homes by allowing GSE loans up to 115% of the local area median home price, and to make GSE loans effective in high cost areas by raising the permanent loan limit from $417,000 to $625,500,.

·Creates a new permanent affordable housing trust fund - financed by the GSEs and not by taxpayers - to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.

Backstopping Fannie Mae and Freddie Mac To Shore Up the Housing Market

·Gives the Secretary of the Treasury the authority to increase the already existing line of credit to Freddie and Fannie for the next 18 months, as well as giving the Treasury Department standby authority to buy stock in those companies to provide confidence in the GSEs and stabilize housing finance markets.

·Includes meaningful taxpayer protections directing the Treasury Department to take the following into account, when using these authorities:

o Taxpayers should be first in line for being paid back, before other shareholders.

o There should be restrictions on dividends for shareholders and on compensation for the executives of the GSE's until taxpayers are fully reimbursed.

·Strengthens oversight by requiring the Federal Reserve and Treasury to consult with the new regulator on issues concerning the safety and soundness of the GSEs and use of the standby authority.

·While Fannie Mae and Freddie Mac both now meet the capital and liquidity requirements set by their regulator, given the severe turmoil in the markets, the standby authority is needed to increase market confidence and enable both enterprises to continue to raise capital and maintain the availability of mortgage credit.

·The non-partisan Congressional Budget Office says "There is a significant chance -- probably better than 50 percent -- that the proposed new Treasury authority would not be used before it expired at the end of December 2009." CBO estimates that, if used, the federal budgetary cost of this proposal would be $25 billion over fiscal years 2009 and 2010.

·Because CBO estimates that these provisions could increase direct spending, we need to waive PAYGO rules in order to consider it. The bill requires the Treasury Secretary to make an emergency designation before using the authority -- certifying that he is acting to provide stability to financial markets, prevent disruptions in the availability of mortgage finance, protect the taxpayers, and facilitate an orderly restoration of private markets. No spending would occur unless the Secretary certifies that there is an emergency that requires immediate action. However, if those conditions are not met, there would not be any increase in the deficit as a result of this legislation.

Images: latvian, Allan Ferguson, pnrwa, Mannequin

FHA loan requirements allow borrowers to qualify for a mortgage who otherwise would not be able to own their own home.

The Federal Housing Administration is government help for families who don't qualify for a standard mortgage but want to own their own home. It is administered by Housing and Urban Development (HUD).

FHA Loan Requirements: Required Income

Since there are no minimum FHA loan requirements for income, assessors will be looking for evidence of a steady income of some kind over the past few years, and a good record o fwalways paying your bills on time, no matter what. FHA loan requirements allow child support, unemployment compensation, seasonal pay, VA benefits, military pay, Social Security income, alimony, rent paid by family, and retirement pension payments to qualify as income for this purpose. FHA loan requirements may also treat part-time pay, overtime, and bonus pay as part of your income, if you have a track record of getting a steady amount from these sources.

FHA Loan Requirements: Debt-to-Income Ratio

The FHA guidelines are more generous than standard lending criteria, allowing 29% of income to be spent servicing housing loans, and 41% in total in servicing long term debt of any kind.

Conventional mortgage lenders, on the other hand, would take a percentage point off the housing ratio, bringing it back to 28%, and a whole five percentage points off the total long-terms debt ratio, requiring no more than 36%.

FHA Loan Requirements: Down Payment

FHA loan requirements specify that you have a down payment of at least 3% of the purchase price of the home, but this cash may be a gift or grant. Private mortgage lenders tend to ask that the borrower's own funds cover at least 3% of the 3%-5% down payment required, partiularly if other aspects of the loan application are marginal.

FHA Loan Requirements: Credit Score

FHA loan requirements, unlike those of all other financial institutions and mortgage lenders, are free from credit score requirements. In other words, you can qualify for an FHA loan without having a credit history. Refer to your FHA lender for details on how to become eligible for an FHA loan if you have always paid your debts in cash or have not been on the planet long enough to have established credit.

FHA loan requirements are refreshingly free from any requirement for a perfect credit score. In the case of bad credit, the FHA allows you to re-establish credit if two years have passed since a bankruptcy has been discharged and all judgments and tax liens have been paid, or if arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue. What is more, the FHA may also allow you to borrow once three years have passed since a foreclosure or a deed-in-lieu has been completed.

FHA Loan Requirements - Online Qualification Test

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Mark Bennett is an experienced financial commentator for MoneyTalks.com and many other reputable sources of financial information.

Photo: pnwra

FHA loan requirements have been designed with high-risk borrowers in mind.

The Federal Housing Administration supports Americans who have problems meeting standard mortgage loan requirements - administered by Housing and Urban Development (HUD), the program provides mortgage guarantees on behalf of high-risk borrowers.

FHA Loan Requirements: Required Income

While there are no minimum FHA loan requirements for income, there ore other requirements. Assessors will be looking at the past three yers or more, to determine whether you have a steady income and a track record of paying your bills on time. FHA loan requirements allow unemployment compensation, VA benefits, military pay, Social Security income, alimony, seasonal pay, child support, retirement pension payments, and rent paid by family to be considered income sources. FHA loan requirements may consider bonus pay, part-time pay, and overtime to constitute part of your assessed income, if they are reasonably regular amounts.

FHA Loan Requirements: Debt-to-Income Ratio

The FHA considers 29% of your income the maximum allowable for housing costs and a total of 41% of your income the maximum to be spent towards all long-term debt combined.

Conventional mortgage lenders, on the other hand, would take a percentage point off the housing ratio, bringing it back to 28%, and a whole five percentage points off the total long-terms debt ratio, requiring no more than 36%.

FHA Loan Requirements: Down Payment

FHA loan requirements state that you must have a downpayment of at least 3% of the purchase price of the home, but the FHA says this cash may be a gift or grant. Most mortgage lenders will expect to see a borrower's own cash providing at least 3% of a 3%-5% down payment, especially in a non-standard lending situation.

FHA Loan Requirements: Credit Score

FHA loan requirements are very loose when it comes to credit scores, offering a viable alternative to an entire segment of the population. You can be approved for an FHA loan without a credit history. Consult your FHA lender for details on how to establish your eligibility for an FHA loan if you prefer to pay debts in cash or are too young to have established credit.

FHA loan requirements have a much more realistic view of credit scores than the average bank. If you do have bad credit, the FHA allows you to re-establish credit if all judgements and tax liens have been paid, and two years have passed since a bankruptcy has been discharged, or if arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue. Even if you have had a difficult housing loan history, the FHA may also allow you to qualify for a mortgage once three years have passed since a foreclosure or a deed-in-lieu has been completed.

FHA Loan Requirements - Online Qualification Test

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FHA loan requirements have been relaxed as part of the Federal government's Housing and Economic Recovery Act, 2008. You may well qualify now, even though in the past you would have been excluded from an FHA loan.

You have nothing to lose from doing a little research to see whether the new FHA loan requirements will allow you some mortgage debt relief.

FHA Loan Requirements - Online Qualification Test

Summary Of FHA Loan Requirements

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