What Are FHA Guidelines?


FHA Guidelines

FHA Guidelines
Gustan Cho Associates

FHA guidelines are lending standards set by the U.S. Department of Housing and Urban Development, HUD, where in order for a mortgage lender who is FHA approved needs to at least the minimum standards set by the Federal Housing Administration.  HUD is the parent of the Federal Housing Administration.  FHA is not a lender but a government entity that insures mortgage loans in the event of a borrower defaulting on their mortgage loan.  In the event if the mortgage loan borrower defaults on their mortgage loan and the property goes into foreclosure, FHA will cover the loss to the mortgage lender.  FHA sets their minimum lending standards, called FHA guidelines, and it is up to the particular mortgage lender to impose stricter standards on top of the minimum FHA guidelines.  The additional requirements imposed by individual mortgage lenders are call mortgage lender overlays.  FHA approved mortgage lenders can impose much stricter lending standards than the minimum FHA guidelines.

FHA Standard Lending Limits

FHA has maximum mortgage 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, and Chrome are in high cost areas where the FHA lending limits are substantially higher than the standard FHA lending limits.

Standard FHA lending limits for a single family unit is $271,050.  For high cost areas, the maximum FHA lending limit for properties in high cost areas are capped $729,750 on single family units.  For two unit residential properties, the standard FHA lending limits is at $347,000.  The maximum FHA lending limit for two unit residential units in high cost areas is capped at $934,200.  Standard FHA lending limits for 3 unit properties is set at $419,000.  For high cost areas, 3 unit properties FHA lending limit is capped at $1,129,250.  For four units, standard FHA lending limits is at $521,250.  Maximum FHA lending limit for four unit residential properties in high cost areas is capped at $1,403,400.

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 ARMs.  FHA insured mortgage loans are for owner occupant primary residences only and any owner occupant can qualify to purchase a one to four unit 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 are 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 but moved out to another home but still owns the FHA insured home and is an investment property, FHA will insure a FHA streamline refinance 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, condominimum 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 is no limitations on the acreage of the property with FHA loans.  The mortgage loan borrower needs to occupy the subject property within sixty days of closing on the home purchase.  The homeowner needs to own the property and reside 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 a FHA loan can purchase another owner occupant primary home with a FHA loan if the mortgage loan borrower got a job transfer that is well beyond a reasonable commuting distance or in another state.  Generally you need a distance of at least 60 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 second FHA mortgage loan if they are upgrading to a larger residence due to a growing family.  The mortgage loan borrower needs to qualify for both properties.  In the event if the mortgage loan borrower cannot qualify for both properties, the current mortgage loan can be paid down so 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.

 Vacating Jointly Owned Home

If you and your spouse currently jointly own a home and both you and your spouse are on the mortgage and one of you are moving out, the person moving out can qualify for another owner occupied primary residence FHA insured morgtgage 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

If you are planning on refinancing your home with an FHA home loan, there are FHA Guidelines with regards to FHA refinance mortgage loans.  To refinance your 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 your home.

Your home cannot be listed on the MLS if you are planning on refinancing your home.  To do a rate and term refinance, the listing agreement with your realtor needs to be canceled at least one day prior to your 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 a FHA insured mortgage loan, the FHA mortgage loan applicant 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 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 FICO.  Home buyers with credit scores between 500 FICO and 579 FICO, a minimum 10% down payment is required.  Those with credit scores of 580 FICO 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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