FHA Loan Programs

Today, the FHA loan program has become the primary option for refinancing and purchasing a new home. With FHA home financing, you can buy a new home with as little as 3% down. Loan officers and lenders call this 97% home financing, and that is significant more aggressive than most non-FHA loans that require 20-30% down-payments. Gone are the days of 100% financing with the 80-20 loans. The only no money down mortgages today are the 100% VA home loans, but you must be a military veteran to be eligible. The FHA also allows the 3% down-payment to be in the form of a gift. The FHA continues to promote homeownership. FHA still allows couples to set-up a “bridal registry” where family relatives and friends can contribute to the down-payment of a house.

FHA loan qualifications begin with an FHA mortgage lender who will evaluate your debt to income ratio which is simply dividing your monthly expenses by your monthly income. With traditional mortgages, (ie. conforming home loans), lenders will typically allow a 28% of your gross monthly income on housing costs such as mortgage interest, principal, property taxes and home insurance. Conventional mortgage guidelines will usually enable you to shave a debt to income ratio of 36%.

With FHA home loans guidelines, the typical ratios are 31/43, but DE underwriters have the authority to approve borrowers with higher debt ratios if they have significant compensating factors. This is a major benefit first time homebuyers can find with FHA home loans because the guidelines are more flexible allowing applicants to get better and more aggressive financing than with conforming or mortgage loans.

In addition FHA now offers incentives for “energy efficient mortgages”. If you have an energy-efficient home, the FHA believes you’re energy costs will be reduced, so there is a better chance that you will pay your mortgage, because your utility costs are lower. FHA mortgage lending enables 33/45 ratios with EEM home financing. More than 555,000 FHA loans were processed in 2005, in 2004 827,000 FHA mortgages funded and in 2003, over 1,500,000 FHA home loans were closed. From 2006 to 2008 FHA has seen a giant increase in origination activity with the new programs like FHA Secure and Hope for Homeowners.