Does the FHA issue loans?

No. To give mortgage lenders greater assurance in lending money to people with less desirable credit scores or less cash on hand, the Federal Housing Administration (FHA) provides mortgage insurance to the loans. This gives lenders the confidence to issue loans, knowing that the government will pay them back if the borrower doesn't make their mortgage payments. 

What types of property qualify for FHA loans?

Most types of homes qualify for FHA loans, including manufactured homes and condominiums. In fact, you can even use an FHA loan to purchase a four-unit multiplex if you intend to occupy one of those units. Of course, before you sign anything, be sure to look into the fine print to see the limitations around this specialized use of FHA loans. 

Want to know if a home in your area is eligible for an FHA loan? Find Out Here.

I have credit problems. Can I still get an FHA loan?

If you have imperfect credit, FHA loans are likely your best option when it comes to securing financing for a new home. Because they are insured by the government, FHA loans are able to provide more flexible credit requirements. 

At the same time, FHA lenders don’t approve just any and all applications. You can do a number of things prior to filling out an application to improve your chances of getting approved for an FHA loan:

  • Refrain from taking out any unneeded loans.
  • Make your payments, especially mortgage payments, on time for a year or more.
  • Pay down your existing debts.
  • Get copies of your credit reports and start resolving any outstanding issues. 

An FHA loan specialist can be extremely helpful in taking these steps in addition to helping you calculate your debt-to-income ratio.

What information should I gather to get started on my FHA loan?

Applying for an FHA loan can often feel like one huge document gathering process, but this is just part of assuring lenders that they can trust you with their money. The required information you’ll need to provide to your FHA-approved lender includes:

  • Your gross monthly salary (with W-2 forms for the past two years)
  • Signed income tax returns for the past two years
  • Bank statements for several months
  • All the addresses where you've lived in the past two years
  • Names and addresses of your employers for the last two years

For those who are self-employed, a profit and loss statement for your business for the last two years will need to be provided.

I'm on active duty in the military. Is it possible to get a reduced rate on my FHA mortgage?

Yes. Thanks to the Service Members Civil Relief Act (SCRA), members of the U.S. military can cap interest rates on any debt obtained before active duty—from mortgage loans to credit cards to students loans—at 6%. Debts incurred during active duty are not included under SCRA. By reducing your interest payments, you can pay off your debts faster and, therefore, qualify for a lower rate on an FHA loan.

Another nifty benefit of SCRA is that it protects military members from being evicted while on active duty. To get this benefit, you must prove that your active duty assignment makes it hard for you to pay rent-related debts. This is yet another way that the SCRA can help military members build a healthy financial profile, which can, in turn, help you get lower rates on an FHA loan.

It is worth mentioning here that military servicemen and servicewomen may also qualify for VA loans, which nearly always offer lower interest rates than those found in FHA loans. If you’re in the military or are a veteran of the military, we recommend that you look into VA loans first.

I've heard about the FHA Streamline Refinance program. How does it work?

Those who are already enjoying the benefits of an FHA-insured mortgage and want to refinance may be pleased to learn that the FHA offers a streamlined refinancing program. Under this program, FHA borrowers can bypass much of the paperwork and the appraisal that usually accompanies refinances, saving both time and money.

Of course, you should be aware of the requirements for the FHA Streamline Refinance program. Naturally, the loan you currently hold must be insured by the FHA. It also cannot be delinquent. The costs associated with the refinance—yes, there are some—are usually just built into the new loan and, as a result, increase the effective interest rate on the loan.

Finally, know that an FHA streamline refinance does not allow you to take cash out.

What are the advantages of refinancing an FHA loan?

Securing a lower interest rate is likely a goal of anyone trying to refinance their FHA loan, and it makes perfect sense. A lower interest rate can ultimately save you thousands of dollars in interest and cut down your monthly payment significantly. Do you have an interest rate that is above the current market rate? You would do well to consider refinancing your FHA loan.

You should also know that refinancing isn’t free. It comes with costs, which are usually wrapped into the new loan. Based on this, you should calculate your break-even point—when your monthly savings have fully covered the costs of the new loan—to determine if a refinance still makes sense for your financial situation.

An FHA refinance can also be used to convert an adjustable rate mortgage (ARM) to a fixed-rate. Not only will this cut down on the amount of interest you will pay, but it will also help you build up the equity in your home faster. 

Is there a loan limit for an FHA mortgage?

Yes. For all of the loans it insures, the FHA has put in place a nationwide floor and ceiling. Although loan limits can differ greatly from one area of the country to another, the limit is usually 115% of the median sale price in a particular area. That limit is multiplied in the case of a multi-unit property.

To find out what the FHA loan limits are in an area, consult with your FHA loan specialist.

Why is an appraisal required for an FHA loan?

You’re not the only one investing in your new home. So are your lender and the FHA. For this reason, everyone involved needs to know that the property you want to buy is actually worth the price they would be paying. An appraisal is the primary way of doing this.

Under FHA guidelines, the appraisal requires an evaluation of all deficiencies or visible defects that could affect the safety of the occupants or the value of the home. Knowing these problems exist can help you get the problems fixed before you take ownership of the house and protect you from the costs of unforeseen damages.

Is an FHA Loan right for you? Or do you have any more questions about FHA Loans? Contact a Mortgage Advisor today.