In 1934, Congress introduced the National Housing Act which established universal lending guidelines banks could follow. These new guidelines formed the Federal Housing Administration which set forth lending guidelines banks could follow. The FHA loan has since become the loan of choice for those buying in Plant City, Florida who prefer a loan program that has as little down payment as possible.
Prior to the introduction of the FHA home loan program, lending banks had vastly different requirements. For example, one bank might ask for a down payment of 30% while a bank down the street 50%. These loan programs were also for a relatively short period, say as short as five years. The FHA loan standardized lending guidelines everywhere and provided homeownership opportunities that might otherwise be not available.
FHA loans carry a government-backed guarantee and are one of the three classes of government-backed loans. The other two are the USDA and VA loans. This guarantee is financed by the borrowers in the form of two separate mortgage insurance policies that accompany every single FHA mortgage. There is both an upfront premium and an annual one.
The upfront premium is based upon a percentage of the loan amount but does not have to be paid for out of pocket but is typically rolled into the loan amount. There is also an annual mortgage insurance premium that remains for the life of the loan. This annual premium is based upon the outstanding loan balance and is paid in monthly installments. Should the loan ever go into default, the mortgage lender is compensated for the loss.
Unlike conventional mortgages, FHA loans can only be used to finance a primary residence and cannot be used to finance a rental property or a vacation home. Besides being available to finance a single-family home in Plant City, Florida the loan program can also be used to finance a duplex or a 2-4 unit property as long as the borrowers occupy one of the units.
While FHA loans typically have somewhat relaxed guidelines they still have a minimum credit score. While the FHA does not specifically set the required score, approved FHA lenders do. Most lenders ask the minimum credit score to be 600. There are three credit scores pulled, one from each of the three credit repositories of Equifax, Experian and Transunion.
The lender will use the middle score and ignore the lowest and highest of the three. If there is more than one borrower on the application, the lender will use the lower of the available middle scores. The down payment required for an FHA loan is 3.5% of the sales price. For example, for a sales price of $200,000 home listed for sale in Plant City, Florida, the down payment would then be $7,000.
As it relates to qualifying income, lenders will ask for copies of the most recent pay check stubs covering a 30 day period from all borrowers on the application. The two most recent W2 forms from all borrowers will also be required. For those that are self-employed or have additional self-employment income, lenders will require the two most recent filed Federal Income Tax returns as well as a year-to-date profit and loss statement prepared by the business owner or an accountant is also required.
FHA loans do not have a limitation on where the property can be used or located, such as USDA loans do and do not require the borrowers to be a veteran or member of the armed services such as VA loans. For those looking for a competitive loan program with as little out of pocket as possible, the FHA loan just might be the ideal candidate. Need assistance? Please contact us at 904-810-2293