FHA mortgage insurance provides lenders with protection against losses as the result of homeowners defaulting on their mortgage loans. The lenders bear less risk because FHA will pay a claim to the lender in the event of a homeowner's default. Loans must meet certain requirements established by FHA to qualify for insurance. If you live in the Lewiston & Auburn, Brunswick and Augusta area call East Coast Mortgage Group for assistance in acquiring an FHA loan for you.
What is the FHA?
The Federal Housing Administration (FHA) was founded as a result of the Great Depression to help the housing industry. The FHA continues to help prospective home buyers that do not fit traditional financing requirements, like having a credit history or evidence of income. FHA insures the mortgage loan. Congress created the Federal Housing Administration (FHA) in 1934.
When the FHA was created, the housing industry was flat on its back:
- Two million construction workers had lost their jobs.
- Terms were difficult to meet for homebuyers seeking mortgages.
- Mortgage loan terms were limited to 50 percent of the property's market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
- America was primarily a nation of renters. Only four in 10 households owned homes.
The Federal Housing Administration levies insurance on the mortgage loan. If a borrower defaults on a loan the FHA uses the money from these insurance premiums to reimburse the lender. This really is how the FHA encourages lenders to provide loans to otherwise higher-risk applicants.
The FHA became a part of the Department of Housing and Urban Development's (HUD) Office of Housing in 1965.
Why an FHA Loan?
FHA loans have been helping people become homeowners in Maine since 1934. How do they do it? The Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so a lender can offer you a better deal.
- Lower down payments
- Lower closing costs
- Easier credit qualifying
Typically an FHA loan is one of the easier mortgage loans to qualify for. Why? Your down payment can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. FHA loans are available on 1-4 unit properties. Credit scores can be as low as 580-640, but most lenders will prefer 640 plus. Another advantage of an FHA loan is that it can be assumable, which means if you want to sell your home, the buyer can "assume" the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan. Additional advantages are as follows;
- Gifts from acceptable sources allowed for down payment and closing costs
- Seller allowed to pay closing costs (limits apply)
- Historically Low 30 and 15 year fixed interest rates
- Statutory loan limits apply
What are the requirements for FHA financing?
- Worked for the same employer for the past 2 years or a verifiable employment history
- Valid Social Security number, lawful residency in the U.S. and be of legal age to sign
- Minimum credit score of 640 (Fico) with most lenders
- Have the minimum down payment of 3.5 percent. This money can be gifted by a family member.
- New FHA loans are only available for primary residence occupancy
- Must have a property appraisal from a FHA-approved appraiser (lender to order)
- Your front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, home insurance) needs to be less than 31 percent of your gross income. It may be possible to get approved with a higher percentage.
- Your back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) needs to be less than 43 percent of your gross income. You may be able to get approved with as high a percentage as 56.99 percent. A higher percentage may also be available.
- If you have had a bankruptcy, it must be two years or older and you have re-established good credit. Exceptions can be made contact East Coast Mortgage Group for more information.
- If you went through a foreclosure and it has been three years, and you have re-established good credit. Exceptions can be made if there were extenuating circumstances and you've improved your credit. Contact East Coast Mortgage Group for more information.
What types of FHA Loans are available?
FHA Purchase and Refinance
Offer a robust suite of mortgage programs to accommodate your borrowers lending needs. We offer a Standard program for lower credit borrowers down to 580* FICO, and a Premium Program for high credit score borrowers.
*Although 580 Fico is acceptable there are risk factors associated with these scores and some lenders do not offer these loans. Call East Coast Mortgage Group to assist you in being approved by a lender.
The standard FHA 203k loan is used to purchase or refinance a home that needs major rehabilitation, or when the repairs are structural in nature. The standard 203k loan is also used when the total renovation costs exceed the $35,000 limit of the 203k streamline loan.
FHA Streamline 203k
Easy to use program specifically designed for those who wish to make improvements on a home they own, or would like to buy. Allows you to finance repair costs up to $35,000 – within your FHA purchase or refinance itself.
FHA Repair Escrow 203(b)
Intended to facilitate uncomplicated rehabilitation to a home being purchased from HUD. The funds for the repairs and reserve contingency are borrowed and cannot be more than $5,000 combined.
FHA Manufactured Home Loans
Offering manufactured home lending in our Standard and Portfolio programs. Our financing programs offer Manufactured loans for clients with FICO's as low as 620!