Gustan Cho The Mortgage Expert,
Publish On: January 10, 2019
This BLOG On FHA Insured Mortgage Loans Versus Other Loan Programs Was UPDATED And PUBLISHED On January 10th, 2019
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 HUD Guidelines
In this article, we will cover and discuss FHA Insured Mortgage Loans Versus Other Loan Programs.
The Role Of FHA And Benefits Of FHA Insured Mortgage Loans
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 homeownership 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
- The mission of FHA is to make homeownership 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
HUD currently insures more than one trillion in home loans in the United States and makes homeownership 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 Insured Mortgage Loans
There are many advantages for a home buyer or homeowner to get an FHA insured loans versus a Fannie Mae conventional mortgage loans.
- One of the greatest advantages of getting FHA loans is that it allows smaller down payment on home purchases
- Conventional 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 50% DTI
- 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 borrowers with excellent credit scores sometimes need to go with FHA Loans if they have a 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 borrowers need to keep in mind is that FHA rates are normally 0.50% lower than conventional mortgage rates:
- Lenders can offer lower mortgage rates on FHA Home Loans
- This is because of the government guarantee against the borrower defaulting on their loans
- FHA does implement risk-based pricing for borrowers with lower credit scores like conventional mortgage loan programs do
FHA loans are not as credit score conscious like Conventional Loans.
More Advantages With FHA Insured Mortgage Loans
For borrowers with less than perfect credit, no credit, bankruptcy, prior foreclosures, prior short sales, and prior late payment histories, FHA loans may be the only option to go.
- FHA guidelines are much more lenient than other mortgage loan programs such as conventional, portfolio, VA Loans, USDA Loans, and Homepath Loans (Which are conventional loans)
- A borrower can qualify for FHA 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 loans are ideal for renters who want to become first time home buyers.
Non-Occupied Co-Borrowers
There are many instances where mortgage underwriters will not take into account income that is not sourced 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
- HUD 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 borrower can have zero income but will qualify as long as he or she has a non-occupied co-borrower
- FHA 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 us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Borrowers can also email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.
