FHA Loan Guidelines

• an FHA loan that has a term of less than 15 years and loan to value ratios of 90% or greater, reaches a loan to value ratio of 78%, regardless of the period of time that the borrower has paid premiums.
• an FHA loan that has a term of 15 years or more, reaches a loan to value ratio of 78%, provided that the borrower has paid premiums for at least 5 years.
• an FHA loan with a term of 15 years or less and a loan to value ratio of less than 90% will not be charged mortgage insurance.

Closing Costs
FHA defines which closing costs are allowable as charges to the borrower, but the individual FHA office determines the specific costs and amounts that they deem to be fair and reasonable. All other costs are either paid by the seller when reselling the home, or by the lender when refinancing an existing FHA loan.

FHA Loan Debt Ratios
FHA has put guidelines into effect that require borrowers to qualify for an FHA Loan based on debt to income ratios. These ratios are calculated to determine if the borrower has the financial ability to meet the responsibilities inherent in home ownership. 2 ratios are used to make this determination:

The ratio of mortgage payment plus hazard insurance plus homeowner association dues, divided by total gross monthly income. This ratio cannot exceed 29%. The ratio of mortgage payment plus hazard insurance plus homeowner association dues, plus all other monthly fixed payments such as car loans, credit card payments, student loans, etc., divided by the total gross monthly income. This ratio cannot exceed 41%. FHA Loan Credit Guidelines Before approving an FHA loan, the lender will perform a credit analysis of the borrower. If the history of the potential borrower shows a history of slow payments, delinquent accounts, and poor financial judgment, an approval for an FHA loan is highly unlikely.

FHA Loans are not generally available to borrowers who have had a foreclosure on their home or a deed in lieu of foreclosure on their FHA loan in the previous 3 years. Exceptions may be granted in cases of extenuated circumstances, where good credit has been re-established.

Potential borrowers who have filed Chapter 7 or Chapter 13 Bankruptcy may qualify for an FHA loan if certain conditions have been met.

FHA Loan Limits
The maximum amount of the FHA loan that FHA will insure varies from type of property (single family, duplex, triplex or 4plex), and market. The market is usually defined by county, not by state. FHA determines the average market value of each type of property in a particular market and establishes a loan limit accordingly. Check with your lender or local FHA office to determine the
FHA loan limit in your area.

FHA Loan For Fixer-Uppers
In the event that the borrower wishes to save a significant amount of money on the purchase price, he may choose to purchase a property that requires significant repair and remodeling. Under a program known as HUD 203(k), FHA will insure an FHA loan that not only covers the purchase price, but also covers the costs of repair and remodeling, provided that the borrower qualifies for the total FHA loan amount.

An appraisal of the home will determine the current value of the home, as is, and the borrower must provide a detailed list of the cost of repairs and remodeling, which will then determine the value of the home once the work has been completed.

FHA Loan Refinancing: Cashing Out
This refinancing option is attractive to homeowners who have owned their home for a long period of time and as such have a very low loan to value ratio, or to homeowners who live in a market where home prices have substantially increased in value. A Cash Out refinance option allows such a homeowner to replace their current mortgage with an FHA loan of a greater amount than they currently owe on their current mortgage, This allows the homeowner to access the equity in their home for other purposes.

FHA Loan Refinancing: Streamlined refinancing
The streamlining option allows the borrower to refinance the existing mortgage with an FHA loan for the same amount but at a lower interest, at a time when market interest rates are lower than they were when the existing mortgage was originated. Often, a new appraisal is not even required. The
reason it is called a streamlining option is due to the significantly less paper work that is required for the FHA loan compared to traditional refinancing.

In order to qualify for the streamlining option, the homeowner must have an existing FHA loan in place that is in good standing. This option lowers payments but does not provide any cash back.

FHA Loan Types
FHA has a number of FHA loan programs designed to suit the circumstances of individual borrowers.

• FHA Loan: Fixed Rate
  Under this FHA loan, the interest rate and monthly payments remained fixed over the life of the loan. This loan program is suited to borrowers who are established and have stable income for the foreseeable future.
• FHA Loan: Adjustable Rate Mortgage (ARM)
  Under this FHA loan, the interest rate and hence the monthly payments will increase at specified periods of time during the term of the FHA loan. Borrowers making the transition from renting to home ownership, recent college graduates, or other individuals making financial transitions in their lives will find this FHA loan program attractive.
• FHA Loan: Energy Efficiency Mortgage (EEM)
  The FHA Energy Efficient Mortgage program is designed to help current or potential borrowers to significantly lower their monthly utility bills. It allows them to incorporate the cost of energy efficient improvements into their new FHA home loan or FHA refinancing loan.
• FHA Loan: Graduated Equity Mortgage
  FHA Section 245(a) allows borrowers who currently have a limited income, but expect their monthly income to increase, to purchase a home with the help of a Growing Equity Mortgage in which payments start small and gradually increase over time.
• FHA Loan: Condominium Mortgage
  FHA Condominium loans are designed for those borrowers who purchase housing units in a condominium building. These FHA loans take into account monthly maintenance fees and other condominium association fees.

FHA Loan Foreclosures
Every local FHA office maintains a list of properties where the FHA loan has been foreclosed. Should the borrower wish to purchase an FHA foreclosed loan property, he can contact the local FHA office or have his realtor do a search in his area. If the borrower qualifies, he can obtain a new FHA loan on the foreclosed property.