FHA Insured Mortgage Loans Versus Other Loan Programs
This BLOG On FHA Insured Mortgage Loans Versus Other Loan Programs Was UPDATED On October 2nd, 2017
FHA Insured Mortgage Loans are government residential home loans that are originated and funded by private mortgage lenders.
- However, FHA Insured Mortgage Loans are insured by the Federal Housing Administration against borrower default and foreclosure.
- HUD, the parent of FHA, insures private lenders who are FHA Approved in the event the FHA Loan originated and funded default as long as the lender follows FHA Guidelines.
The Role Of FHA
FHA is not a lender. FHA is a government agency that was created under the U.S. Department of Housing and Urban Development (HUD) with its mission and role being to promote home ownership by insuring private lenders against losses in the event if FHA borrowers were to default on their FHA Loans.
- The Federal Housing Administration, FHA, was created in 1934.
- The creation of FHA and role was to induce and promote affordable housing to every hard working American family and make home ownership possible to every American.
- The Federal Housing Administration became part of the United States Department of Housing and Urban Development back in 1965.
FHA Loans Are Most Popular Loan Program In The United States
FHA currently insures more than one trillion in home loans in the United States and makes home ownership possible for those with less than perfect credit and those who are first time home buyers.
- The FHA Loan Programs has insured more than 36 million homes since its inception in 1934.
- FHA is the largest home mortgage insurance company in this world and is still going strong.
Why FHA Loans?
There are many advantages for a home buyer or homeowner to get a FHA insured loans versus a Fannie Mae conventional mortgage loans.
- One of the greatest advantages of getting FHA insured mortgage loans is that it allows smaller down payment on home purchases.
- Conventional mortgage loans require a bare minimum of 5% down payment.
- Conventional Loans allow for 3% down payment for first time home buyers with good credit.
- FHA minimum down payment requirement is 3.5% down payment.
FHA Loans Benefit High Debt To Income Ratio Borrowers
Another major advantage of getting FHA Loans is that their lending guidelines are much more generous than Fannie Mae’s conventional loans.
- Most conventional loans debt to income caps are set at 45%.
- For FHA Loans, caps on debt to income ratios can be as high as 46.9% front end and back end 56.9% to get an approve/eligible.
- Many mortgage loan borrowers with excellent credit scores sometimes need to go with FHA Loans if they have higher debt to income ratio that exceeds the conventional debt to income ratio caps.
Lower Mortgage Rates Due To Government Guarantee
Another important fact that mortgage loan borrowers need to keep in mind is that FHA insured mortgage loans mortgage rates are normally 0.50% lower than conventional mortgage rates.
- Lenders can offer lower mortgage rates on FHA Home Loans because of the government guarantee against borrower defaulting on their loans.
- FHA does implement risk based pricing for borrowers with lower credit scores like conventional mortgage loan programs do,
- But FHA Loans are not as credit score conscious like Conventional Loans.
More Advantages With FHA Mortgages
For mortgage loan borrowers with less than perfect credit, no credit, bankruptcy, prior foreclosures, prior short sales, and prior late payment histories, FHA insured mortgage loans may be the only option to go.
- FHA insured mortgage loans guidelines are much more lenient that other mortgage loan programs such a conventional loans, portfolio loans, VA Loans, USDA Loans, and Homepath Loans ( Which are conventional loans ).
- A mortgage loan borrower can qualify for FHA insured mortgage loans with credit scores as low as 500 FICO.
- However, anyone with under 580 credit scores needs 10% down payment to qualify for FHA Loans.
- Borrowers can qualify for FHA Loans with outstanding collections, judgments, tax liens, recent late payments, recent overdrafts, and high debt to income ratios.
- FHA insured mortgage loans are ideal for renters who want to become first time home buyers.
There are many instances where mortgage underwriters will not take into account income that is not source or documented such as cash income.
- There are many instances where self employed or 1099 workers have sufficient income to qualify for a mortgage loan.
- The mortgage underwriter will not take that income for qualifying purposes because it is not sourced or it is not documented.
- Cash is worthless in the mortgage business and cannot be used whatsoever.
- No exceptions.
- FHA allows for those who do not qualify for a mortgage loan due to lack of income to get a non-occupied co-borrower.
- The actual mortgage loan borrower can have zero income but will qualify as long as he or she has a non-occupied co-borrower.
- FHA insured mortgage loans will allow debt to income ratios as high as 56.9%.
Home Buyers who are interested in getting qualified for FHA Loans with a lender with no lender overlays on government and conventional loans, please contact The Gustan Cho Team at USA Mortgage at 1-800-900-8569 or text us at 262-716-8151 for faster response. Borrowers can also email us at email@example.com. We are available 7 days a week, evenings, weekends, and holidays.