Over 34 Million Homes insured through the FHA mortgage program since 1934 when the program was created.
Compared to conventional mortgages that have tighter underwriting guidelines, FHA-insured loans appeal to a wider range of home buyers by offering easier credit standards, lower down payment requirements and more flexible income calculations.
FHA’s recent “Back To Work Program” has made it possible for borrowers to qualify for a new FHA purchase loan with as little as 2 years out of a recent Bankruptcy or Foreclosure.
FHA Home Loan Basics
The purpose of these loans is that the US Federal Housing Administration can help homebuyers by providing mortgage insurance on your loan. The FHA itself does not actually make the loans, instead they “insure” the mortgages that a traditional lender or bank would make to a borrower. Basically, the FHA helps more borrowers afford to buy homes by giving lenders the assurance they need in the case where a borrower defaults on a loan and is unable to continue making mortgage payments.
Here are a few benefits of the Massachusetts FHA Home Loan Program stands out:
- Low Down Payment – Even as low as 3.5% down payment, the money used towards your down payment can be a gift from a charity or employer, even just money from a family member.
- Credit History – You do not need to have a perfect credit, in some cases even after filing for bankruptcy.
- The FHA has many different options to help prevent foreclosures from occurring due to hard times for homeowners, allowing them to remain in their homes.
- The interest rates are competitive due to the federal government’s insuring of the loans that helps in the protection of the lenders.
Giving the bank the piece of mind that they are protected from circumstances like this, the bank sees less risk and more opportunities to lend out with lower qualification requirements.
While most people believe that the FHA lends money directly to borrowers, it actually just insures a certain type of loan that is financed by traditional banks and mortgage lenders.
Massachusetts FHA Loan Programs:
Four of the most visible single family housing programs that FHA offers are, Section 203(b), Section 234(c), Section 203(k) and Home Equity Conversion Mortgages (HECM) – Reverse Mortgages.
Section 203(b)
- Largest of FHA’s single family programs
- 1-4 unit properties are eligible
- Flexible credit requirements
- 3.5% down payment allowed
- Down payment may be a gift from specific sources
Section 234(c)
- Provides mortgage insurance for individual condominium units
- Credit, down payment and limits of 203(b) apply
- In 2010, condominium complexes must be approved through HRAP/DELRAP to be eligible for FHA insurance
Section 203(k)
- Primary program for property rehabilitation
- Encourages community and neighborhood revitalization
- Only 1 mortgage loan is used for both the acquisition and the renovation
- 1-4 unit properties including condominiums are eligible; check with your lender for manufactured housing eligibility
- Required improvements include cost effective energy conservation standards and smoke detectors
- Consultancy may be required
HECM – Reverse Mortgages
- FHA was the first to promote reverse mortgages nationally
- Allows access to equity in property with flexible terms
- Lump sum, monthly payments, line of credit or a combination available
- Limited to homeowners 62 years of age and older
FHA programs go beyond the scope of the previously listed programs. They offer a Streamline Refinance as well as a Streamline 203(k) for limited repairs. Also, recent legislation has helped FHA offer special programs with incentives to lenders for modifying and refinancing existing mortgages like with the “Making Home Affordable Program.”
When looking for a loan program to fit your specific needs, take a close look at FHA as their programs have become more attractive to both lenders and consumers.
With favorable loan terms, higher loan limits, 30 year fixed repayment terms and flexible down payment options, FHA will continue to encourage home ownership, provide liquidity and stability to the mortgage market.
About Massachusetts FHA Home Loans
The FHA (Federal Housing Administration) was established over 70 years ago as a part of the National Housing act of 1934, in order to help out homes that need improvement, especially after the Great Depression there were numerous home foreclosures and a huge drop in the housing market as well due to failure in the banking system.
Since 1934, the FHA has insured millions of home mortgages with a market share of 30% in 2010 vs 3% in 2007. In 2009, FHA programs insured nearly 2 million loans, which included 750,000 first-time home buyers. Later in 1965 The FHA became a part of the Department of Housing and Urban Development’s (HUD) Office of Housing.
HUD is a division of the U.S. federal government, it is a program that President Lyndon Johnson set in place and was put into law in 1965.
FHA Eligibility Requirements in Cape Cod
The Cape Cod FHA eligibility requirements may include:
- A credit score of at least 530 (640 is preferred)
- 2 years of steady employment/income
- No bankruptcies within the past 12 months
- No foreclosures within the past 2 years
- The borrower must reside in the home as a primary residence
**If you do have a spouse as a co-signer, please keep in mind that their credit may be checked in the process of approval as well.
Massachusetts FHA-Approved Appraisal Required
An appraisal is required as well, but the appraisal must be ordered through a third party appraisal management company. During this process they usually look for repairs in conditions from minor defects, cosmetic defects to normal wear and tears.
Debt-to-Income Ratio Requirements
There are two calculations. The first or Front Ratio is your housing expense-to-income ratio. This is your proposed mortgage payment (principal, interest, taxes, mortgage insurance, and homeowners insurance) divided by your gross monthly income.
The second or Back Ratio is your total monthly obligations-to-income ratio. This is your gross monthly payment including Mortgage PITI divided by your gross monthly income.
Cape Cod FHA loan requirements include a maximum debt to income ratio, that is primarily determined by the FHA approved lender underwriting your loan.
Employment Verification
Employment Verification your most recent pay stubs, W-2’s for the past 2 years and Tax Returns, however if you are self-employed or have been employed for less than 2 years the lender may ask for additional documentations such as; federal income tax statements and/or profit & loss statements.
Eligible Property Types
The eligible property types in Cape Cod include:
- 1-4 unit residences
- The borrower must live in the home
- Manufactured homes (mobile homes)
- Must be owner-occupied. Keep in mind that this loan program may not be eligible for investment or rental properties.
You may be able to qualify for your second home for an FHA Home Loan if the first home isn’t already a primary residence and you do not already have an FHA Home Loan in place for that Cape Cod home.
**1-4 unit properties including condominiums are eligible; but please still check with your lender for manufactured housing eligibility.
Down Payment Requirements
The down payment for an FHA Home Loan is in most cases are considerably low compared to conventional mortgages. The minimum down payment for any FHA mortgage is usually 3.5% as opposed to at least 5% for conventional mortgages.
For example:
If you were looking to purchase a $300,000 home, the down payment required would then be $10,500 at a 3.5% down. The conventional loan requirement for down payments is normally at 5% which would be $15,000 down payment required, that is $4,500 that you can use towards repairs to keep up the maintenance or your home and even closing costs instead, helping you save more money for other costly expenses.
Frequently Asked Questions
Here are a few common questions that we have done our best in answering for you below.
Q
What is a FHA Loan?
The Federal Housing Administration (FHA), which is part of HUD, provides mortgage insurance on loans made by FHA-approved lenders to individuals looking to become homeowners, or simply to refinance.
The intended purpose of the FHA Program is to provide mortgage insurance for a person to purchase or refinance a primary residence that is being funded by a lending institution to protect the bank in the case the borrower is unable to continue making mortgage payments or on the edge of a possible foreclosure.
There are many variables that determine eligibility including occupancy, property types, and credit.
Q
I have credit problems, will this make me ineligible for the FHA Home Loan Program?
You don’t necessarily have to have perfect credit to be eligible for an FHA Home Loan.
However, the FHA usually recommends a Consumer Credit Counseling program for anyone who fears being denied a loan as a credit risk.
Your credit counselor may better assist you in these type of questions, as the FHA does require certain ratios for Debt-to-Income (DTI) as well.
Q
Is there a loan limit for FHA?
The FHA loan limit may vary depending on the cost of the area. FHA loan limits may sometimes change, and these are based on factors that can include average area home prices.
Please check with your lender to confirm the current FHA loan limit amounts. Keep in mind as well that loan limits may increase depending on the number of units. A multi-unit home may qualify for a higher rate, but those FHA loan limits are subject to the same factors as single unit homes.
Q
Why is an appraisal of the property required for an FHA Home Loan?
The FHA must evaluate the condition of the property in order to determine its market value, but there is another reason for the examination. The FHA guidelines require an evaluation of any visible defects or deficiencies that could not only affect the value of the home, but also the safety of the occupants.
Q
Are there certain types of properties that qualify for an FHA loan?
Yes, FHA loans allow for most property types for loans, but there are some limitations to certain property types (such as condos and manufactured homes).
Q
What information will I need to gather to get started with the FHA?
You may need to provide the FHA with a wide range of details; this includes all the addresses where you have lived in the previous two years, your employer’s name and addresses for the last two years, plus the amount of your Gross Monthly Salary.
If you have had multiple jobs over the last twenty-four months, you may need your W2s for all of them. You may also need your income tax forms submitted for the last two years. If you don’t have copies of your W2s, you should contact your employers for assistance.
If you need replacement copies of your income tax returns, you can go to IRS’ site and follow the instructions on how to order replacements. A tax transcript is free of charge, and copies of actual tax returns may cost thirty-nine dollars.
Q
I am in the military on active duty. Do I qualify for a reduced rate on my FHA mortgage?
Yes, you may be eligible to qualify for a reduced rate on your FHA mortgage.
The Servicemembers Civil Relief Act was passed in the 1940s to help military people cope with the requirements of being on active duty while trying to meet their financial obligations at the same time.
But still make sure you completely understand the requirements of your lender and the rules of the Relief Act to take full advantage of this important FHA loan benefit.