What is a FHA Loan?

I want the blogs about Real Estate easy for everyone to understand. If you are in the industry and/or been in Real Estate for awhile then you will understand all the lingos and everything you need to know. But I want to make sure everybody thoroughly understands everything you need to know about Real Estate. There are many opportunities in Real Estate.]

What is a FHA Loan?

Thanks to Jerry who explains about the FHA Loan:

For first time buyers, it usually means they don’t have “a lot of money” for a down payment (less than the 20% down required for a conventional loan) but they may have a good job and decent credit. For this scenario then, an FHA loan (Federal Housing Administration) is most commonly used. Now, FHA does not make or give loans. FHA insures the loan to any bank that gives a mortgage loan to someone who has a Low Down Payment and/or a Low Fico Score. These types of borrowers are usually considered “Higher Risk Loans” (because of the LTV – Loan to Value- being lent against the property) so in order to have banks lend money for these “Higher Risk Loans” to buy their home, FHA insures the loan. Basically, telling the Banks “please lend money to these higher risk borrowers as we will back the loan with an insurance, should they default on their loan, you will be covered.”

FHA Loan Benefits & Requirements:
Max loan limit allowed to borrow – up to $726,525 (some smaller counties in California may be a lower loan limit)
Minimum Down Payment required – can be as low as 3.5% of the Purchase Price (you can still get an FHA loan with 5%, 10% and 15% down payments)
The Down Payment CAN be gifted to the Borrower (ie: a gift from a family member, and etc.)
Minimum FICO score allowed – 580 ( Borrowers with FICO scores lower than 580 may be required to bring in a higher down payment)
Allowable Debt-to-Income Ratios (the numbers used to qualify a Buyer for their loan) are a bit more flexible – some banks allow up to 55% of Debt-to-Income Ratios (Ex: For every dollar earned 55 cents can go towards the loan and all debts together)
Can have multiple Co-Borrowers on the same loan
The home being purchased must be the borrowers Primary Residence (meaning they plan to live in the home)
Have at least 2 years minimum at their current job or career type
A monthly Mortgage Insurance, Property Taxes, and Home Insurance must all be included together in the monthly payment (impounded account)
An upfront Mortgage Insurance amount will be paid as part of the Closing Costs (calculated as 1.75% of Loan Amount)

• Jerry Cervantes
  Loan Originator
  NMLS #1656227
  D) 562-818-3733

Your Realtor,
Yoori