The scoop on FHA loans, are they right for you?

     First of all, an FHA loan is used for buying or refinancing a home. FHA loans are HUD loans, or loans that are guaranteed by HUD. This means that HUD will guarantee the loan, or ensure to the mortgage lender who gives you the loan that if you default on the loan that HUD will pay part of the loan amount to the lender. You can think of it as an insurance policy from the government to the lender giving you the mortgage.

     Should you get an FHA loan? Well the answer is: it really depends on your credit, asset, and income situation. FHA loans are very forgiving of credit problems that are greater than 12 months old. If you have lower Credit or FICO scores (less than 600) but you have been paying your bills on time for the past 12 months you might opt for a FHA loan.

     There are several things to know about FHA loans:

• They have a loan limit. This limit is different depending on which county or metropolitan area you're trying to get the loan in. Here's a link to check out the loan limit in your area: https://entp.hud.gov/idapp/html/hicostlook.cfm.



• Typically the FHA loan limits will dictate where you are looking to purchase a home. FHA loans require 3% down payment. This can come as a gift from relative so it doesn't have to be your own money. If you are going to use a gift from a relative, then you should check with your loan officer about the exact way that you should get the money. It is very important how you get the money.



• FHA loans allow down payment assistance programs. These programs essentially allow the seller of a home to 'channel' money to you through the use of a nonprofit organization in the form of a gift. FHA loans allow us to use grants and other forms of first time home buyer incentives given by local city and county governments. A google search for 'housing grants' will give you all the information you'll need to find these programs. Also check eFannieMae.com for more details.





• FHA loans allow you to use alternative forms of credit to prove your credit history. If you don't have a credit report then you can prove payment histories for your cell phone, or cable bill, or electric bill for example. Typically, you'll need to come up with 4 accounts if you are going to prove your credit this way. This kind of credit is compiled in a credit report called a: Residential Mortgage Credit Report (RMCR) and cost about $50 to get completed.



• FHA loans require a more detailed property appraisal. FHA loans also require certain property repairs to be made if they are noted by the appraiser.



• FHA loans allow you buy a fixer upper home and finance most of the costs you would need to rehab, or rehabilitate the home. This is a unique feature that not too many loan programs have.



• FHA loans are only for owner occupied properties. You must live in the property when you take out the loan.



• FHA loans can be used to purchase multifamily homes with up to 4 units. You will have to live in one of the units. This is a great way to have your mortgage paid for: buy a multi unit and have the other tenant rent payments pay for your mortgage payment.



• FHA loans allow for you to energy efficient upgrades to your property and the loan can be used to finance the cost of these upgrades.

       These are some of the important features of an FHA loan. Typically these loans are for First Time Home Buyers.

       There are other types of loans for First Time Home Buyers provided by Fannie Mae and Freddie Mac. A quick search on line will give you ample material for these loans. GetPreQualified.com has additional loan program information: GetPreQualified.com.