FAQ

• What is an FHA mortgage?

  An FHA mortgage is a home loan that is insured by the Federal Housing Administration. FHA does not loan money. Private lending institutions like banks and credit unions, for example loan money. FHA insures the mortgage; this means FHA guarantees to the lender that they will pay off the loan in the event the borrower defaults. This reduces the lender’s overall risk and allows them to offer more competitive interest rates than they otherwise may be able to.

• What are the benefits of an FHA mortgage versus a conventional mortgage?

  FHA home loans offer numerous benefits to the borrower. First of all, lenders are able to offer low interest rates on FHA mortgages since they are insured by the government. Secondly, the down payment required for an FHA loan tends to be lower than that of conventional loan programs (currently as low as 3.5% of the purchase price compared with anywhere from 5% to 30% for a conventional mortgage). Furthermore, it has traditionally been much easier for many borrowers to qualify for FHA home loans than for conventional loans. FHA loans allow for “common sense” underwriting, permitting lenders to be more flexible in whom they will lend money to when compared with more traditional products with rigid guidelines.

• What is meant when someone says an “FHA loan is guaranteed”?

  The Federal Housing Administration does not grant the loan. Rather, they guarantee to the lender that a portion of the loan will be repaid in the event the borrower defaults by insuring the loan. The guarantee is not meant to imply that applicants are guaranteed to be approved for the loan; applicants must still qualify for the loan based on acceptable property, income and credit history.

• Is it true that for an FHA loan, the lender only looks at the past two years of credit history?

  In general, lenders are most concerned with a clean credit history for the past two years. A clean credit history would mean a history free of collections, judgments, late payments, or missed payments. For borrowers who have declared bankruptcy in the past or who have been foreclosed upon, a certain amount of time must have passed before the borrowers would be eligible to apply for an FHA mortgage: one year from the date of filing on a Chapter 13 bankruptcy with acceptable payment history and court approval, two years from the date of discharge for a Chapter 7 bankruptcy and three years from the date of foreclosure.

• Does FHA offer Interest Only Loans?

  No, FHA does not offer interest-only loans. An interest-only loan, in essence, means the borrower never pays down the principal balance and therefore never repays the loan.

• Are stated or no documentation loans available with FHA loans?

  The only type of reduced documentation loan offered by FHA is the Streamlined Refinance product. This product allows someone with an existing FHA loan to refinance into a lower interest rate or lower term without the hassle of a new appraisal or income and credit qualification. Otherwise all new FHA loans require full documentation.

• Is mortgage insurance required for FHA loans?

  Yes, mortgage insurance is required to obtain an FHA home loan. The lender collects the Mortgage Insurance Premium (MIP) at closing and sends it to FHA. If the borrower defaults on the loan, FHA uses the premium to help in paying the loan off.

• Can I cash out of my home?

  Yes. FHA offers programs that allow borrowers to either purchase or refinance a home. FHA offers several different refinance options. Their rate-term refinance option allows you to pay off your current mortgage while financing in the costs of refinancing along with the costs of certain repairs and improvements. FHA also offers a cash-out refinance option which allows the borrower to finance up to 85% of their home’s value. This option allows the borrowers to take out a new mortgage for more than what they owe on their current mortgage and use the additional money for whatever they choose.

• How much will mortgage insurance cost me?

  At time of closing, an upfront Mortgage Insurance Premium (MIP) is due in an amount equal to 1.75% of the loan amount for most FHA loan products. (However, the MIP is typically included in the loan amount, which means borrowers don’t have to pay this out of pocket.) For example: a loan amount of $150,000 requires upfront MIP of $2,625. Please contact your FHA Loan Specialist to find out how much upfront mortgage insurance would be required for your specific situation. Additionally, for loans with a term greater than 15 years and a loan-to-value ratio of 95% or more, annual MIP is also owed in the amount of 0.5% of the loan amount, divided into monthly payments. (Note: “loan-to-value ratio” is the loan amount divided by the value of the home). For example: a loan amount of $150,000 requires annual MIP of $62.50 per month. Please contact your FHA Loan Specialist to find out how much (if any) annual MIP would be required for your specific situation.

• How many people can I have on my FHA loan?

  Although you generally do not see more than three co-borrowers on a loan, there is no set limit. The limit will vary from lender to lender. Please contact your Loan Specialist if you plan on applying for a loan with more than four total borrowers to discuss your options.

• Can I add someone to the title of my property secured by an FHA loan?

  You may add whomever you choose to the title of your home. You may not, however, add anyone else to the note of your FHA loan without refinancing.

• Can I use my girlfriend/boyfriend on the loan?

  Yes, non-married couples may take out an FHA loan together.

• Can I get an FHA loan if I am self employed?

  Yes, self-employed individuals are eligible for an FHA loan, given that they have been self-employed for at least two years and their self-employed income can be verified with their last two years’ tax returns. If the individual has been self-employed for less than two years then the file is reviewed by an underwriter on a case-by-case basis. Generally, self-employment income established for less than 18 months is not eligible for consideration. If neither of these apply to you then please contact a Loan Specialist to discuss your particular employment situation and what programs may best fit.

• My last FHA loan was foreclosed upon. Can I get an FHA loan?

  Yes, it is possible to get an FHA loan even if you have had one foreclosed upon in the past. Three years must have passed since the date of foreclosure, with no collections, judgments, late payments, or missed payments since then. Exceptions can sometimes be made for borrowers attempting to obtain an FHA loan less than three years from a foreclosure if the foreclosure was a direct result of extenuating circumstances beyond your control such as serious illness or the death of a wage earner.

• I have declared bankruptcy in the past. Can I still get an FHA loan?

  Yes, it is possible to get an FHA loan if you have declared bankruptcy in the past. For borrowers who have filed Chapter 13 bankruptcy, at least one year must have passed since the date of filing (with acceptable payment history and court approval). For borrowers who have filed Chapter 7 bankruptcy, at least two years must have passed from the date of discharge. (However, if the Chapter 7 filing was due to an extenuating circumstance beyond your control, such as serious illness or death of a wage earner, exceptions can sometimes be made). Additionally, the borrower must have maintained perfect credit during that time. If the borrower has had late payments on anything credit-related since being discharged (or filing in the case of Chapter 13) it will be nearly impossible for that borrower to qualify for any type of mortgage.

• What kind of information will I need to provide on the application?

  The following information will be required for both you and your spouse (if applicable). Please keep in mind that additional information or details may be required.

  1. Personal information including name, date of birth, social security number, residence address, and two year residence address history.
  2. Income information including salary and wages, pensions, alimony, child support, dividends, rental income, etc.
  3. Asset information including retirement capital, savings, etc.
• Is the information I provide you kept confidential?

  Yes, all information you provide to us is kept strictly confidential.

• How long does it take to fill out an application over the phone?

  It usually takes around 10-15 minutes to complete an application over the phone, depending on the intricacies of your finances. If something comes up during the application-taking process and you must stop, just call your Loan Specialist back when you have time to finish.

• Can you use my credit report that I pulled off the internet?

  No. We must pull your credit ourselves in order to get you qualified. Our lenders need the credit report in a particular format and need a particular type of credit report in order to properly evaluate your credit position.

• Does pulling credit affect my credit score?

  Normally, having your credit pulled for a mortgage or auto loan on several occasions over a short period of time (less than 30 days) will not have an effect on your credit score. Having your credit pulled on several occasions over a longer period of time may have a very small affect on your score. Overall, inquiries on your credit report affect your credit score much less than other factors such as payment history on your existing accounts, usage habits of your credit card accounts and number of total and recent accounts opened. Also, as stated above, your overall credit history and ability to repay the loan are much heavier deciding factors than your credit score when applying for an FHA mortgage.

• What is the minimum credit score requirement?

  The minimum credit score requirement is 600, however it could be lower if an automated approval is generated. Typically compensation factors such as a low loan to value or debt to income ratio allow for such an approval.

• Do I have to go through a credit check and an appraisal when I refinance?

  Generally, yes. A refinance is a new loan from the lender’s perspective, so the lender wants to be confident that the borrower has a reliable credit history and the house has a market value in excess of the loan amount being requested.

• Who orders an FHA appraisal?

  We will order your FHA appraisal for you. Appraisers must be FHA-approved in order to use that appraisal to qualify you for an FHA loan. See US Department of Housing and Urban Development's website to search for FHA-approved appraisers in your area.

• How much do FHA appraisals cost?

  The cost of an appraisal varies from appraiser to appraiser, but normally the cost is between $350 and $450. Most appraisers require that this fee be paid prior to or at the time of inspection. For multi unit home 2 to 4 unit typically appraisers charge more.

• What sort of problems might there be with an appraisal?

  If an appraiser finds a deficiency that affects the safety of the home it must be fixed prior to closing. Some examples of safety problems include stairs without railings, paint containing lead, or mold infestation.

• Can I take cash out with an FHA refinance?

  Yes, FHA offers a cash-out refinancing option, which is particularly helpful to homeowners whose property has improved in market value since being purchased. In a cash-out refinance, the homeowner obtains a new mortgage for more than what is owed on their current mortgage; in so doing, the homeowner pays off the current mortgage and then has additional cash to use however they want.

• What are the out of pocket cost associated with an FHA refinance?

  There are usually no out-of-pocket expenses incurred with an FHA refinance, other than the appraisal. FHA allows all other closing costs, including lender fees, to be included in the new loan amount.

• What is an FHA Streamline Refinance?

  FHA’s streamlined refinancing option is available to those homeowners who currently have an FHA loan. This option allows for a quick and hassle-free way to reduce the interest rate on your existing FHA loan, typically without the need for a new appraisal or credit and income review. Guidelines to qualify for an FHA streamlined include…

  1. Existing mortgage must be up to date and not delinquent.
  2. The refinance must lower the monthly principle and interest payments unless you are refinancing from an adjustable rate to a fixed rate or unless you are reducing the term of your mortgage.
  3. Cash out over $500 is not allowed for an FHA streamlined refinance