Home Loan Info

Assisting You In Your Home Loan

FHA Loan Guide

Before one even begins looking for a home, it is advisable to make sure you know what the FHA requirements are. Be aware of the FHA Loan Guide and how it applies to you and your spouse or partner. By doing your homework before you look at a home, you know just what your options are, and you can work within those guidelines.

An FHA loan is guaranteed by the Federal Housing Administration, and allows the buyer to put down as little as a 3-5% down payment, and the FHA will guarantee up to 97.75% of the mortgage balance in the event of default. For the average homebuyer, this can make a substantial difference. In the case of an average $150,000 home, it means a down payment of no more than $7,500 instead of $15,000. For many first time buyers or those who have sold a home without having much equity, this can be the difference between home ownership and renting a house or apartment.

The FHA loan guide allows you to maintain your debt to income ratio at 41%, almost 50% of your gross income. It’s important to keep in mind, however, that although this is the amount that you are permitted to have, not all things are taken into consideration such as food, gasoline, and other expenses that are part of day-to-day living. Therefore, it is advisable to allow some cushion for yourself, and not go to the limits that you are permitted, but rather choose a payment structure with which you are comfortable. However, there is a ceiling on the amount that can be financed, based on the area in which you are buying. Additionally, the houses in the city or town of your choice cannot be selling for more than $180,000.

The FHA loan also has a 1.5% charge for the insurance on the loan. This is based on the purchase price of the property and is renewable at .500% in the years to follow. This initial premium is payable at the time of closing, and though higher than what is charged on conventional loans, it allows the borrower with little or no credit, or even questionable credit, to be able to purchase a home. Sometimes it may even be possible to finance the down payment into the loan, thus reducing the amount of up front costs that are required. In addition, unlike conventional loans, FHA allows 100% of the down payment to be a gift from friends or relatives; all that is required is proof of the deposit of the money into a checking or savings account.