Gustan Cho The Mortgage Expert,
Publish On: May 1, 2019
This BLOG On FHA Guidelines And Qualifying Requirements For Home Buyers Was UPDATED On May 1st, 2019
FHA guidelines are lending standards set by the U.S. Department of Housing and Urban Development, HUD. In order for a mortgage lender who is FHA approved to get all FHA Loans insured by HUD, they need to meet the minimum standards set by the Federal Housing Administration.
- HUD is the parent of the Federal Housing Administration
- FHA is not a lender
- FHA is a government entity that insures mortgage loans in the event of a borrower defaults on their FHA Loan
- In the event borrowers defaults on their FHA Loans and the property goes into foreclosure, FHA will cover the loss to the mortgage lender
- FHA sets their minimum lending standards, called FHA guidelines
- It is up to the particular lender to impose stricter standards on top of the minimum FHA guidelines which are called lender overlays
- The additional requirements imposed by individual mortgage lenders are call mortgage overlays
- FHA approved lenders can impose much stricter lending standards than the minimum FHA guidelines
FHA Standard Lending Limits
FHA has maximum lending limits depending on the county the home is located.
- Certain counties throughout the United States where the government deems it as a high-cost area have higher FHA mortgage lending limits than the standard FHA lending limit
- We will just cover the standard FHA lending limits
- Areas in California such as
- Los Angeles
- Irvine
- Pasadena
- San Diego
- Laguna Nigel
- LaJolla
- Newport Beach
- San Jose
- San Francisco
- Modesto
- Berkeley
- Oakland
- Lake Tahoe
- San Bernadino
- Burbank
- Monterey
- Palm Springs
- Long Beach
- Santa Barbara
- Anaheim
- Sacramento
- Belmont
- Fresno
- Santa Monica
- Menlo
- Mountain View
- Beverly Hills
- Santa Cruz
- Palo Alto
- Riverside
- Stockton
- Malibu
- Carlsbad
- San Luis
- Obispo
- Temecula
- Torrance
- Huntington Beach
- Napa
- Camel-By-The-Sea
- Santa Rosa
- Eureka
- Fremont
- Redding
- Ontario
- Orange
- Hollister
- Murrieta
- Chico
- Vallejo
- Ojai
- Calabasas
- Chrome
- The above areas are in high-cost areas where the FHA lending limits are substantially higher than the standard FHA Loan Limits.
Standard FHA Loans Limits Versus FHA High-Cost Loan Limits
Standard FHA lending limits for a single family unit is $294,515.
- For high-cost areas, the maximum FHA lending limit for properties in high-cost areas are capped $679.650 on single-family units
- For two-unit residential properties, the standard FHA lending limits are at $377,075
- The maximum FHA lending limit for two unit residential units in high-cost areas is capped at $870,225
- Standard FHA lending limits for 3 unit properties is set at $455,800
- For high-cost areas, 3 unit properties FHA lending limit is capped at $1,051,875
- For four units, standard FHA lending limits are at $566,425
- Maximum FHA lending limit for four-unit residential properties in high-cost areas is capped at $1,307,175
FHA Loans: Terms And Conditions Of FHA Loan Programs
FHA offers 10 year fixed rates, 15 year fixed rates, 20 year fixed rates, and 30 year fixed rates.
- FHA also offers 30-year adjustable rate mortgages, called ARM
- FHA insured mortgage loans are for owner occupant primary residences only
- Any owner-occupant can qualify to purchase a one to four units residential property
- This is called the FHA 203(b) mortgage program
- The FHA 234(c) mortgage loan program is for those home buyers who want to purchase FHA approved condominium units
- The FHA 203(h) mortgage loan program is for disaster victims
- The FHA 203(k) loan program is a construction and acquisition mortgage which is rolled into one mortgage loan and one closing
FHA Occupancy Requirements
FHA loans are only for owner occupant primary residence homes.
- An exception to this rule is if the homeowner who has a current FHA loan
- If homeowner moved out to another home but still owns the FHA insured home and is an investment property, FHA will insure an FHA streamline refinance the mortgage of non-owner occupant home
- It is through the FHA Streamline Refinance Mortgage Loan Program
What Is Definition Of Primary Residence Under FHA Guidelines?
According to HUD, a primary owner occupant home is a home where the homeowner will reside in the subject property for at least six months and one day out of every year.
- Properties that qualify for owner occupant properties are single family homes, PUD and/or townhomes, condominium units, and manufactured homes that sits on a concrete foundation
- Two to four unit properties will also qualify for owner occupant properties as long as the mortgage loan borrower occupies one of the units as their primary residence
- There are no limitations on the acreage of the property with FHA loans
- Borrowers need to occupy the subject property within sixty days of closing on the home purchase
- The homeowner needs to own the property and resides in the property for at least 12 months in order to be able to convert the current owner-occupant primary home and make it a rental and be able to purchase another owner occupant home
Two FHA Loans At The Same Time
A homeowner with an FHA loan can purchase another owner-occupant primary home with an FHA loan if borrower got a job transfer that is well beyond a reasonable commuting distance or in another state. Generally, need a distance of at least 100 or more miles to be able to get a second FHA loan as a primary owner occupant home.
- A homeowner with a current FHA loan can qualify for a second primary owner occupant home with a conventional loan if they are upgrading to a larger residence due to a growing family
- The borrower needs to qualify for both properties
- In the event, if a borrower cannot qualify for both properties, the current mortgage loan can be paid down to the mortgage balance loan to value is at 75% LTV
- At 75% loan to value, the 75% of the potential rental income can be used as other income and can be used to qualify for debt to income ratios
- Home buyers cannot have two FHA Loans at the same time unless the second home is being purchased over 100 miles away and it is due to job relocation
Vacating Jointly Owned Home
Borrowers and their spouse who are on the mortgage and one of them are moving out, the person moving out can qualify for another owner-occupied primary residence FHA Loan. This is very common in divorce situations where one person keeps the home and the spouse purchases another owner occupant property.
FHA Guidelines On Refinance Mortgages
Homeowners planning on refinancing home with an FHA home loan, there are FHA Guidelines with regards to FHA refinance mortgage loans.
- To refinance FHA loan via rate and term, the minimum time you can do a refinance mortgage after a home purchase is 6 months from the closing date reflected on the HUD Settlement Statement
- To do a cash-out refinance mortgage, the minimum seasoning requirement is one year from the date you have closed on a home
Home cannot be listed on the MLS if planning on refinancing home.
- To do a rate and term refinance, the listing agreement with realtor needs to be canceled at least one day prior to mortgage application date and needs to be off all multiple listing services
- With regards to cash out FHA refinance mortgage loans, the listing agreement with your realtor needs to have been canceled six months before the mortgage loan application date
Who Qualifies For FHA Insured Mortgage Loans?
To be eligible for FHA loans, you must meet FHA Guidelines.
- FHA Guidelines state to qualify for an FHA loan, applicants needs to be legal residents of the United States who are either citizens, naturalized citizen or have proof of a valid green card
- Those who have work visas or are not permanent residents of the United States but are currently working in the United States legally through company sponsorship are not eligible for FHA loans
- But may be eligible for ex-patriot mortgage loan programs which are portfolio loans
- FHA requires evidence of a valid social security number by providing a copy of a valid social security card
- FHA requires two year of employment and residence history
Minimum credit scores required for FHA loans is 500. Home buyers with credit scores between 500 and 579 a minimum 10% down payment is required. Those with credit scores of 580 or higher, a 3.5% down payment is required.
All FHA loans require upfront mortgage insurance premium and annual mortgage insurance premium paid in 12 equal monthly installments which is escrowed.
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