FHA Mortgage Details

What Does FHA Stand For?

Federal Housing Administration - the Federal Housing Administration is a division of the agency of Housing and Urban Development, otherwise known as HUD. The FHA is the largest mortgage insurer of any organization in the world.

What Is A FHA Loan?

 

An FHA Loan is a residential mortgage insured by the Federal Housing Administration.  Having the backing/insurance of the Federal Housing Administration enables lenders to offer loans for a person’s primary residence that have easier qualification standards and lower down payment options than are otherwise available via traditional mortgage products.

 

What is the Mission of FHA?

The goal of the Federal Housing Administration is to:

  • Contribute to building and preserving healthy neighborhoods and communities;

  • Maintain and expand homeownership, rental housing and healthcare opportunities;

  • Stabilize credit markets in times of economic disruption;

  • Operate with a high degree of public and fiscal accountability; and

  • Recognize and value its customers, staff, constituents and partners.

 

Who is FHA Designed to Help?

 

  • FHA Loans are designed for persons financing their Primary Residence.  

  • FHA Loans are not designed to finances properties that are a person’s Second Home or Investment Property (unless you are refinancing an existing FHA Loan that turned into an Investment Property).

  • The FHA loan program designed to enable more credit qualified individuals the opportunity to achieve the goal of home ownership that don’t quite fit for traditional, conventional loans.

  • Many prospective borrowers who qualify under FHA Loan Program Guidelines are unable to qualify for traditional conventional loan financing.

  • FHA borrowers can get approved with:

    • Lower Credit Scores – As low as 550 qualifying credit score.*

    • Lack of or Limited Credit History- Non-traditional trade lines, such as utility bills, rent history, and other accounts that are not included on traditional credit reports may be considered in supporting a determination of a borrower’s ability to repay the loan.

    • Adverse Credit- Shorter waiting periods after significant derogatory credit events before eligibility for financing is restored.

          • Bankruptcy – 2 years

          • Short-/Deed-in-Lieu – 3 years

          • Foreclosure – 4 years

       

    • Higher Debt-to-Income Ratios – Up to 55% (or higher) debt ratios permitted.  Significantly exceeding what is permitted under conventional loan guidelines.

    • Low Down Payments – Qualify with as little as 3.5% as a down-payment.

 

What Do You Need to Consider When Deciding Whether an FHA Loan is Right for You?

Maximum FHA Loan Limit

The maximum loan amount for an FHA Loan is often less than for a conventional mortgage.  Depending on the purchase price you are considering, you may not be able to borrower as much money as you need through FHA financing. The maximum FHA Loan limit is determined by the county the property is located in.  

Click Here to Search for the Maximum FHA Loan Limit by County.

 

Can I Qualify for a Conventional Mortgage?

Another consideration when determining whether an FHA loan or a Conventional Mortgage is right for you is whether you can qualify for a conventional mortgage.

  • Conventional Mortgages typically will have lower closing costs, a lower total monthly payment and easier appraisal/property approval guidelines.

  • FHA Loans, while more costly in terms of Up-Front Fees and total monthly payment, are easier to qualify for, and provide access to a greater cross-section of borrowers.

 

Total Monthly Payment and Closing Costs

 

FHA Loans typically offer equivalent to better interest rates than similar credit qualifying conventional mortgages. But, all FHA Loans will have Mortgage Insurance, which often make traditional conventional mortgages preferable to FHA loans if you can qualify for a conventional loan as the total monthly payment on an FHA loan will be higher than the corresponding monthly payment on a conventional mortgage.

 

  • Why are FHA Mortgage closing costs and total monthly payments typically higher than equivalent conventional mortgages?  In two words – Mortgage Insurance.

 

What is FHA Mortgage Insurance?

 

Mortgage Insurance is an insurance policy lenders are required to take out on FHA loans to offset the increased risk of default associated with these loans.

 

All FHA Loans contain 2 types of Mortgage Insurance:

    • UFMIP:  Upfront Mortgage Insurance

    • Also referred to as Upfront MIP

    • Upfront Mortgage Insurance is collected at closing.

    • Upfront Mortgage Insurance = 1.7% of the loan amount.

    • For Example: A Loan Amount of $200,000 will have an Upfront Mortgage Insurance Premium of $3,400

    • $200,000 X 1.7% = $3,400

    • Upfront MIP is not directly paid by the FHA borrower at closing.  It is financed.

    • HUD recognizes that FHA borrowers’ often-times have limited available money for down-payment & closing costs.  As a result, the Upfront MIP is charged, but then financed into the total loan amount so the FHA borrower does not have to come out of pocket with the money. Below is an Example:

Purchase Price = $250,000

Minimum Down Payment of 3.5% = $8,750

Loan Amount = $241,250

Upfront MIP of 1.7% of Loan Amount = $4,101.25

Total Loan Amount = Loan Amount + Upfront MIP = $245,351.25

 

    • Monthly Mortgage Insurance

      • There is a second Mortgage Insurance on FHA Loans.

      • This Insurance is paid monthly as part of the monthly mortgage payment.

      • Monthly MI is paid for the life of the loan.  

      • It will never disappear or fall off the loan.

        • **This is an important consideration when deciding whether to elect for a traditional conventional mortgage with MI or an FHA loan.

        • The FHA loan will always have mortgage insurance no matter how much equity you accumulate in the property either by appreciation or by paying the loan amount down.  Whereas with a conventional mortgage the Mortgage insurance falls off once the loan amount is paid down to 78% or the original purchase price on a Primary Residence.  

        • What is the rate used to calculate FHA Monthly MI?

        • The standard rate is typically _____ but this depends on factors such as LTV, credit score, etc.

 

 

FHA Property & Appraisal Requirements & Flips

  • FHA requires more vigilant review of the Property and Appraisal/Appraised Value than is required under conventional mortgage guidelines.

    • Defects noted on the appraisal are often required to be corrected.  i.e. Broken tiles, holes in walls, etc.

    • The Underwriter must review Flips and increases in value carefully.

  • What is a Flip?

    • A flip is when a property is purchased, then shortly later sold at an increase in value.

    • FHA loan guidelines require 90 days to pass from the date a property is sold before it can be sold again.

      • The Rule is that the new contract cannot be signed until the 91st day after the prior sale was completed.

  • Appraisals are associated with the property.

    • Appraisals are associated with a property via an FHA Case # that is assigned when you apply for an FHA Loan.

  • When the appraisal is completed, it is recorded with FHA and is the only appraisal that can be used for that property for ____ days.  

 

For example, if you enter a contract on a property and complete an FHA appraisal, and then cancel the contract for any reason (low appraisal, loan is denied, failed inspection, etc.), any future borrower that decides to buy the property that applies for an FHA Loan will have to use the original appraisal for a period of _____ days before it expires. 

 

What are the FHA Maximum Loan Limits By County?

 

  • The maximum FHA loan limit is determined by the county the property is in.

  • FHA Loan Limits are updated once a year by HUD.

  • To Search FHA Loan Limits By County Click Here.

  • The FHA Maximum Loan Limits for South Florida Are:

    • Miami-Dade County FHA Loan Limits (Miami FHA Loan Limits)

      • Single Family /Townhome/Condo = $345,000

      • Duplex = $441,650

      • Tri-plex = $44533,650

      • Four-plex = $663,450

    • Broward County FHA Loan Limits (Ft Lauderdale FHA Loan Limits)

      • Single Family /Townhome/Condo = $345,000

      • Duplex = $441,650

      • Tri-plex = $44533,650

      • Four-plex = $663,450

    • Palm Beach County FHA Loan Limits: (Boca Raton FHA Loan Limits)

      • Single Family /Townhome/Condo = $345,000

      • Duplex = $441,650

      • Tri-plex = $44533,650

      • Four-plex = $663,450

    • Monroe County FHA Loan Limits: (Key Largo and Key West FHA Loan Limits)

      • Single Family /Townhome/Condo = $529,000

      • Duplex = $677,200

      • Tri-plex = $818,600

      • Four-plex = $1,017,300

 

What Types of FHA Loans are There?

  • Types of FHA Loans

    • Traditional FHA Loans

    • 203k Rehab Loan

      • A 203k rehab loan is a FHA Mortgage product for properties that need work or renovation.

      • The cost of the renovation is determined by an independent FHA approved contractor and added to cost to purchase the property.

      • The minimum down payment is 3.5% and is calculated off of the cost to purchase the property + the cost of the renovations needed (up to the maximum FHA loan limit for the county).  

    • These loans are more complex than traditional FHA mortgages and require additional time to close.   We recommend a minimum of 60 – 90 days, depending on how long it will take you to find the contractor and put a construction budget together.

    • The general process is that the borrower hires an FHA approved inspector who inspects the property and determines what improvements are required to bring the property up to FHA standards plus any additional renovations/improvements that the borrower wants to make.  

    • Once the inspector has approved this, the borrower must find an FHA Approved Contractor to complete a construction budget which details the cost to complete the work. 

    • An appraisal is then completed on the property.

    • The appraiser determines a value based on what the value of the property will be once the work is completed.

    • This process takes some additional time, and is why we recommend planning on 60-90 days for loan approval.  

    • It is important that you discuss this potential timeline with the Seller to ensure that the Seller will agree to your proposed timeline to complete the process and close the loan.

    • It is also important to take note that the borrower can’t choose to complete the renovation/improvement to the property him/herself.  You must use an approved contractor and must go through the inspection process.

    • After closing a time-table is set for draws/inspections to complete the work.

    • FHA 203k rehab loans are not simple, and are not recommended for a first time home buyer or a borrower with no prior experience.

 

Types of FHA Refinances

 

FHA Streamline Refinance (Non-Credit Qualifying): An FHA Streamline Refinance is for persons who wish to lower their interest rate & monthly payment or change from a riskier mortgage (i.e. an Adjustable Rate Mortgage) to a lower risk Fixed Rate Mortgage. Typically FHA rate-term refinances do not require normal credit & underwriting qualification!

 

  • This means:

    • No Appraisal

    • No Income Documentation

    • No Asset Documentation (Unless you plan on bringing cash-to-close)

    • FHA Streamline Refinances are usually structured so that you don’t bring any cash-to-close, or so that you only bring your typical monthly mortgage payment to closing!

    • Foundation Mortgage often structures these FHA Streamline transactions so that you have no other closing costs!

    • The process typically takes under a month.

    • And the result is you lower your monthly payment.

    • If FHA Mortgage Rates are low, and you don’t plan on selling or paying off your home in the near future, this is a fantastic program aimed at reducing your monthly payment and housing debt!

**Every scenario is unique though, and what is best or available for you may be different than these common scenarios.  

Speak with one of our professional, licensed Mortgage Bankers for a complete evaluation of your scenario now.

What Do I Need To Do To Qualify For A FHA Streamline Refinance?

      • Credit Score

        • There is a minimum credit score & mortgage payment history requirement.  Typically at least 550 or higher.

      • You need to have made at least 6 payments on your current FHA loan to qualify for an FHA Streamline Refinance.

      • Net Tangible Benefit

        • FHA has strict requirements to protect their borrowers and ensure that there is an actual benefit to you in terms of lower monthly payment or movement from an adjustable to fixed rate mortgage loan.

        • Foundation Mortgage will review your scenario with you and ensure that your refinance does meet FHA’s Net Tangible Benefit requirement before initiating the process!

  • FHA Streamline Refinance (Credit Qualifying)

    • When do we do a full Credit Qualifying FHA Refinance?

  • FHA Cash-Out Refinance

    • The maximum LTV on a FHA Cash-Out Refi = 85%

    • The process for an FHA Cash-out Refinance is similar to a traditional loan approval process.

      • A new appraisal will be required

      • Full verification of credit, income, and asset documentation.

    • The new FHA loan will have Mortgage insurance.

    • There is no maximum amount that you can cash-out, but the maximum possible loan amount will be based on the lesser of 85% of the appraised value or the maximum loan amount for the county (assuming your income and other factors support the loan).