70. HOW IS THE FHA FUNDED?
Lender claims paid by the FHA mortgage insurance program are drawn from the Mutual Mortgage Insurance fund. This fund is made up of premiums paid by FHA-insured loan borrowers. No tax dollars are used to fund the program.
71. WHO CAN QUALIFY FOR FHA LOANS?
Anyone who meets the credit requirements, can afford the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence may apply for an FHA-insured loan.
72. WHAT IS THE FHA LOAN LIMIT?
FHA loan limits vary throughout the country, from $115,200 in low-cost areas to $208,800 in high cost areas. The loan maximums for multi-unit homes are higher than those for single units and also vary by area.
Because these maximums are linked to the conforming loan limit and average area home prices, FHA loan limits are periodically subject to change. Ask your lender for details and confirmation of current limits.
73. WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?
With the exception of a few additional forms, the FHA loan application process is similar to that of a conventional loan (see Question 47). With new automation measures, FHA loans may be originated more quickly than before. And, if you don't prefer a face-to-face meeting, you can apply for an FHA loan via mail, telephone, the Internet, or video conference.
74. HOW MUCH INCOME DO I NEED TO HAVE TO QUALIFY FOR AN FHA LOAN?
There is no minimum income requirement. But you must prove steady income for at least three years, and demonstrate that you've consistently paid your bills on time.
75. WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?
Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans-such as those set up by a church or community association - qualify, too. Income type is not as important as income steadiness with the FHA.
76. CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?
Yes. Short-term debt doesn't count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt. Talk to your lender or real estate agent about meeting the FHA debt-to-Income ratio.
77. WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?
The FHA allows you to use 29% of you income towards housing costs and 41% towards housing expenses and other long-tem debt. With a conventional loan, this qualifying ratio allows only 28% toward housing and 36% towards housing and other debt.
78. CAN I EXCEED THE RATIO?
You may qualify to exceed if you have:
79. HOW LARGE A DOWN PAYMENT DO I NEED WITH AN FHA LOAN?
You must have a down payment of at least 3% of the purchase price of the home. Most affordable loan programs offered by private lenders require between a 3% - 5% down payment, with a minimum of 3% coming directly from the borrower's own funds.
80. WHAT CAN I USE TO PAY THE DOWN PAYMENT AND CLOSING COSTS OF AN FHA LOAN?
Besides your own funds, you may use cash gifts or money from a private savings club. If you can do certain repairs and improvements yourself, your labor may be used as part of a down payment (called "sweat equity"). If you are doing a lease purchase, paying extra rent to the seller may also be considered the same as accumulating cash.
81. HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO QUALIFY?
The FHA is generally more flexible than conventional lenders in its qualifying guidelines. In fact, the FHA allows you to re-establish credit if:
82. CAN I QUALIFY FOR AN FHA LOAN WITHOUT A CREDIT HISTORY?
Yes. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details.
83. WHAT TYPES OF CLOSING COSTS ARE ASSOCIATED WITH FHA-INSURED LOANS?
Except for the addition of an FHA mortgage insurance premium, FHA closing costs are similar to those of a conventional loan outlined in Question 63. The FHA requires a single, up-front mortgage insurance premium equal to 2.25% of the mortgage to be paid at closing (or 1.75% if you complete the HELP program- see Question 91). This initial premium may be partially refunded if the loan is paid in full during the first seven years of the loan term. After closing, you will then be responsible for an annual premium - paid monthly - if your mortgage is over 15 years or if you have a 15-year loan with an LTV greater than 90%.
84. CAN I ROLL CLOSING COSTS INTO MY FHA LOAN?
No. Though you can't roll closing costs into your FHA loan, you may be able to use the amount you pay for them to help satisfy the down payment requirement. Ask your lender for details.
85. ARE FHA LOANS ASSUMABLE?
Yes. You can assume an existing FHA-Insured loan, or, if you are the one deciding to sell, allow a buyer to assume yours. Assuming a loan can be very beneficial, since the process is stream lined and less expensive compared to that for a new loan. Also, assuming a loan can often result in a lower interest rate. The application process consists basically of a credit check and no property appraisal is required. And you must demonstrate that you have enough income to support the mortgage loan. In this way, qualifying to assume a loan is similar to the qualification requirements for a new one.
86. WHAT SHOULD I DO IF I CAN'T MAKE A PAYMENT ON MY LOAN?
Call or write to your lender as soon as possible. Clearly explain the situation and be prepared to provide him or her with financial information.
87. ARE THERE ANY OPTIONS IF I FALL BEHIND ON MY LOAN PAYMENTS?
Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.
For FHA loans:
For conventional loans:
Talk to your lender about specific loss mitigation options. Work directly with him or her to request a "workout packet." A secondary lender, like Fannie Mae or Freddie Mac, may have purchased your loan. Your lender can follow the appropriate guidelines set by Fannie or Freddie to determine the best option for your situation.
Fannie Mae does not deal directly with the borrower. They work with the lender to determine the loss mitigation program that best fits your needs.
Freddie Mac, like Fannie Mae, will usually only work with the loan servicer. However, if you encounter problems with your lender during the loss mitigation process, you can call customer service for help at 1-800-FREDDIE (1-800-373-3343).
In any loss mitigation situation, it is important to remember a few helpful hints: