FHA loans have been around since 1934 and have enabled over 34 million people become homeowners by relaxing the eligibility requirements banks set for home loan financing.
Of course, by expanding the eligibility of Buyers by relaxing credit requirements and down payment requirements, these loans become more risky for Lenders and Banks. So the US Federal Housing Administration’s (FHA) role in this process is that they act as an insurance company.
By insuring your loan against losses from foreclosure, they reduce the risk of losing money for the Lenders and Banks. A “foreclosure” happens when a Borrower defaults on their loan and is not able to continue making payments. This is the risk Lenders and Banks are taking ….no matter what the loan product.
The bottom line here is that when FHA insures a loan with more flexible eligibility requirements, they remove much of the risk banks and Lenders take on and it helps more Delaware borrowers buy homes.
Since FHA is insuring these loans, they do establish the eligibility guidelines the Banks and Lenders must follow in approving the loan. These loans are available throughout Delaware. The only restriction to keep in mind is the maximum Loan Amount is set by County. You will find this restriction in the “Can I Qualify” tab.
Why Get an FHA Loan?
LOW DOWN PAYMENT: One of the most favorable features of the FHA loan is that it only requires 3.5% down. Your down payment can come from your own savings or investments, your IRA or 401k or it can be gift money.
FLEXIBLE CREDIT GUIDELINES: FHA loans have the most relaxed credit requirements of any loan product. You can have a middle credit score as low as 580. ( If you’re not quite at 580…we can offer guidance to help get you there). You can have one 30 day late in the last 12 months and you only need to be 24 months from the discharge of a bankruptcy. Collections typically would need to be paid off….however Medical collections can usually be left open.
NO CREDIT AND NO CREDIT SCORE: You may still be eligible for an FHA loan even if you don’t have any established credit….and even if you don’t have a credit score. It is most important in this case to have a verifiable rental history and savings. We also use alternate credit like car insurance, utility bills, cell phone bills, cable bills, etc to show a pay history.
GREAT INTEREST RATES: FHA has some of the lowest interest rates of all the loan products. This low rate can be “fixed” so that you can be assured your principle and interest payment will never change.
NO PREPAYMENT PENALTY: You can pay off an FHA loan as fast as you like without fear of any penalty. You can send extra money any time, as much as you like, or pay the loan off any time without penalty.
ROLL IN CLOSING COSTS: When you purchase a home, you will incur “closing costs” associated with the purchase. Attorney’s Fees, transfer taxes, recording fees and escrows are just some of these fees. Usually totaling 3.5 to 4% of the sale price of the home. And FHA will allow the Seller of the Home to pay up to 6% of the sale price to cover these costs for you at Settlement.
FHA STREAMLINE REFINANCE: Once you have an FHA loan, you may have the option of refinancing the loan to a lower interest rate with a Streamline. Under this program, you do not go through the normal loan application by providing payroll info, pulling credit and having an appraisal done. However, your mortgage payment cannot have been 30 days or more late in the last 12 months.
Can I Qualify for an FHA Loan?
The FHA Loan has some basic qualifying guidelines you must meet and a Loan Limit Restriction based on your County.
- 24 month consistent work history. Doesn’t have to be with the same Employer. If you were a full time student during this 24 month window…that is acceptable in lieu of working.
- Minimum middle credit score of 580 for any Borrower on the loan
- One 30 day delinquency on credit in the last 12 months
- Verifiable rental history is very helpful, particularly for those with lower credit scores. If no rent history, having savings is a strong bonus.
- If you have had a Bankruptcy, you must be 24 months from the date of discharge. And it is very important that you have re-established credit.
- If you have had a Foreclosure or Short Sale, you must be 36 months from the date the title of the home was taken out of your name.
- Collections will typically need to be paid off. However medical collections can usually be left open depending on the amount.
- If you do not have established credit or a credit score, you must be able to verify a rent history and have 3 additional alternative sources of credit…such as car insurance, utility bills, cell phone, cable bill, etc.