The Federal Housing Administration (FHA) is an agency that aims to assist hopeful future homeowners to successfully gain ownership of a property. For one, FHA loans are widespread among those who have difficulty in financing. However, any borrower must see both sides of this loan so a profitable venture could be expected in the end.
Basically, an FHA loan enables a buyer to give a small down payment upon purchasing a home. Say, he only has to pay 3 percent of the purchase price as the initial payment. Acquiring this type of loan may be helpful for current homeowners to finance remodeling a home, obtaining home repairs or home energy-efficient improvements. This could also be used to refinance current loans. This loan is also advantageous for sub-prime borrowers as there is no prepayment penalty involved.
All FHA insured mortgages are assumable, typically beneficial for sellers. For example, a financially capable buyer may claim responsibility of the seller’s mortgage. The buyer would take over the loan so the seller would be saved from scouting refinancing loans. Then again, there are certain restrictions on the assumability conditions of FHA loans. Only those mortgages that originated before December 1, 1986 are free from assumability limitations. The lender usually requires thorough report of the creditworthiness of the person (assumptor) assuming the loan. Private investors are not allowed to become assumptors of insured mortgages that were subjected to restrictions of the 1989 Act. To further learn about terms and conditions, the Housing and Urban Development online site has specific information about this matter.
Now here is the other side of the deal, there are some cases wherein this loan would not work for the home buyer’s benefit. Some sellers could not take the risk of receiving such loan. This is because the agency is not actually lending money to the buyer. Instead, the agency merely guarantees the lender to cover for the buyer in case delinquent payments occur. And processing the payment claims may take some time. Thus, there are fewer deals now that accept offers from buyers backed up with FHA loans.
Another disadvantage for the buyer is that there is a need to pay more for the private mortgage insurance (PMI) given that the down payment is much lower than conventional market rates. The situation here is that the buyer has to pay the one-time PMI fee and continue paying for monthly dues. The money saved from low down payment is then off set by the costly obligation every month.
The loan application process also poses some difficulties. There are a number of requirements the applicant has to accomplish for a limited period of time. There are also limitations on the type of housing units the loan might be used for and amount of money that could be borrowed. On the other hand, the limitations vary according to location.
So for the buyer, you firstly need to check out the application requirements and restrictions in your area. Weigh the pros and cons of getting this type of loan. The main advantage is that you could be given financial leniency. For the seller, you must screen your buyer if despite the attached FHA loan, you could still gain from the selling transaction. Or if you have this loan yourself, you need to evaluate whether the buyer is capable of assuming your mortgages.
There is no harm in trying out this type of loan. Both the buyers and sellers must take into consideration both the benefits and repercussions of acquiring such loan. In the end, both parties could look forward to satisfying deal.
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FHA Loans FAQ:
Question: Recent experience with FHA loans as a seller?
My realtor said that there is a good chance buyers for my house will get an FHA loan. I have heard that these loans can take considerably longer than conventional loans and the inspections are nit-picky and hard to pass. However, she also said that things aren’t as bad as they were in the past. Any recent experiences would be appreciated.
Answer: FHA is not nearly as bad as they used to be… 30 day closings are the norm now. Conventional loans require more money down & higher credit scores so there is more hope for your buyers if they go FHA.
Question: How to get FHA loan if property tax already payed for the next year?
I have already payed all of my property tax for 2010, but I understand that FHA loans will charge property tax with each payment. If I get an FHA loan do I risk having to pay property tax twice for 2010?
Answer: Your information is wrong. Prepaying your property taxes does not prevent you from getting an FHA loan nor do you have to “pay twice.”
Question: What are the minimum requirements for a fha home loan?
I have found a home I would like to buy but my credit rating is bad. The home is for 60,000 and I have about 4000.00 to put down. what’s the minimum credit rating for a fha loan and the other requirements? Also, where do I find a fha home loan at?
Answer: The minimum credit is a 620. You will need to put down at least 3.5% plus the house itself must be approved by the FHA. You “find” an FHA loan at banks….same place as all other loans.
Question: Does FHA loans finance purchase of Real Estate Owned (Bank-Owned) properties?
Answer: Well FHA doesn’t actually finance any property but yes they do. The main issue most people have is the selling bank refusing to accept offers from people who wish to purchase with FHA financing. FHA has requirements with regards to the condition of the property and the selling banks generally wont spend the money to get the property up to snuff for FHA financing.
Question: FHA loans for students?
I am a college student and I am somewhat confused on how I can get an FHA loan with my dad (co-borrower non-occupant). I don’t have an income but I can get a part time job. How should I go about getting the loan? I have no credit history, would that be a problem?
Answer: Your dad can be a non occupant co borrower for an FHA loan for you, even if you don’t have a job. Your dad would have to qualify for the entire mortgage then, and his current debt load, including his own mortgage.
Most FHA lenders do require a credit score of 620, so having no credit at all could be a problem. Your first step would be calling a bank or mortgage lender that specializes in FHA loans and have them pre qualify you. They can pull your credit to see where you stand, and run the numbers with your dad’s income to see if you’ll qualify that way.
Question: Does HUD allow FHA loans to close if tax returns have been filed, but IRS has not yet finalized?
Answer: HUD is not the problem, the lender is the one requiring tax returns to be finalized. This is a standard requirement. Every lender I know requires it. It’s not a HUD guideline, but every mortgage lender is allowed to overlay their own stricter guidelines over top the FHA guidelines, to help manage their risk. Not being able to verify a borrower’s income through the most recent tax returns is definitely a risk that most lenders are just not willing to take right now.
Question: Should I buy my own stove in an FHA loan?
I am purchasing a house with an FHA loan. This is a bank owned property. The previous owner took all of the appliances out the home. As a requirement of an FHA loan, a stove and hood must be in the property before closing. My realtor says I should get a stove and put it in there. That sounds stupid to me, because I don’t own the house yet and haven’t closed yet. Am I responsible for buying the stove if the seller (bank) hasn’t put the stove in?
Answer: It’s a requirement for your loan. If the house does not have a stove your loan will not close.
You have 3 options.
1) The seller pays to have a stove and hood put in.
2) You buy them and put them in
3) You find a different house.
Question: Do FHA loans finance short sales?
I was wondering if FHA financed “SHORT SALE” homes for sale. Considering that they are priced so low I am assuming that the buyer would have the pay the full asking asking price in cash, prior to closing; however, I am not very knowledgeable of this subject,
Answer: You can finance a short sale any way you like. Yes, you can use FHA if the home condition will pass FHA guidelines. A foreclosure is almost always going to cost the lender a LOT more than a short sale. The problem with a short sale is that they normally take a very long time to get an answer back from the lender approving the amount of the offer.