For those that are not VA home loan eligible but still want or need a mortgage loan that requires as little cash as possible, the FHA loan should be a likely candidate for properties located in Homestead, Florida or Miami-Dade County. Back in 1934, in an effort to jump start the economy, Congress introduced the National Housing Act of 1934. This multi-faceted program provided various stimulus packages meant to help a healing economy recover. One of the most popular programs introduced was the FHA loan with guidelines set forth by the Federal Housing Administration. This act established universal lending guidelines banks could all follow and allowed for more buyers being able to buy and finance a home. For example, banks offered very short term loans compared to FHA loans today which can be a term as long as 30 years. Banks would approve a home loan for a period as short as three years forcing the owners to refinance or pay off the note entirely. In addition, down payment requirements were as high as 40% of the sales price.
Today, FHA loans ask the minimum down payment be just 3.5% of the sales price of the home. If a home in Homestead, Florida is listed at $225,000, the down payment would be just $7,875. Compare that to a 20% down payment required by most conventional loan at $45,000. Funds for the down payment and associated closing costs must come from the borrowers own accounts or in the form of a financial gift from a relative or qualified non-profit agency. The current FHA loan limit in Miami-Dade is $345,000. Home buyers in search of larger loan amounts should look into the 95% Jumbo Loan Options here.
While FHA lending guidelines are considered somewhat relaxed compared to a low down payment conventional loan, lenders do ask for a minimum credit score of 620. Lenders will request a credit score from each of the three credit agencies. The lender will use the middle credit score for loan qualifying purposes. If there is more than one borrower and therefore more scores, the lender uses the lower of the two middle scores.
FHA loans do ask the lender determine affordability and does so by comparing the gross monthly income of all borrowers on the application with the total monthly payment, including principal and interest, taxes, insurance and mortgage insurance, as well as additional credit obligations. Income is verified by providing the most recent pay check stubs covering a 30 day period as well as the two most recent W2 forms from the borrowers. For those that are self-employed, FHA lenders will ask for the most recent two years of filed federal income tax returns, both personal and business, as well as a year to date profit and loss statement.
FHA loans carry an inherent loan guarantee in favor of the lender approving the mortgage. This guarantee compensates the lender in the case of default. The guarantee is financed with both an upfront mortgage insurance premium and an annual mortgage insurance premium paid in monthly installments. The upfront premium does not have to be paid out of pocket and may be rolled into the final loan amount.
While FHA loans used to purchase a home in Homestead are popular with first-time home buyers, FHA loans are available to any borrower, regardless of any first-time homebuyer status. As long as the borrowers finance a property to be used as a primary residence the loan is available to most anyone with qualifying credit, income and verified sufficient funds to close. For those looking for a low-cost mortgage option with competitive interest rates, the FHA loan should be looked at. FHA has also announced the annual mortgage insurance costs will be going to lower in 2017. This will not only help new home buyers, but also existing homeowners that want to refinance their current FHA into a lower interest rate.
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