FHA Loan Requirements - FHA Loan Rules

FHA loan down payment requirements are small - 3% of purchase price;
Ability to use a gift as your total down payment;
FHA loan criteria allows borrowers with less than perfect credit;
FHA home mortgage loans allow you to include closing costs in your mortgage amount;
Interest rates for a FHA loans versus a conventional mortgage will be very close, if not identical;
FHA loan programs allow home improvement funds to be included in the purchase money mortgage amount.

Disadvantages:

FHA loan mortgage insurance (1.5% of loan amount) is due at closing but may be included in loan amount;
FHA loan insurance (0.5%) is payable annually - 1/12 of premium included in your monthly payment;
FHA loan appraisals are more extensive than conventional ones - may cost a bit more.

These are some major pros and cons. As you can see, the advantages can mean a great deal to you while the few disadvantages result in just a few higher costs to achieve your goal of home ownership. You may not qualify for conventional financing but you might fit perfectly into the FHA loan process.

There are technically no government loans. Most people using the term are talking about FHA loans, which are guaranteed by the Federal Housing Administration. They might also be referring to a Veterans Affairs loan, commonly called a VA mortgage. FHA and VA loans have little, if anything, in common so it's important to know the difference.

FHA does not actually make any loans but provides loan guarantees to approved lenders. FHA loan guidelines are often affectionately call the original "non-conforming" loan products since they allow lower income, credit challenged, and first time home buyers to own homes with their liberal requirements. FHA housing loans are available to everyone without restriction and can be perfect for borrowers with some credit issues and first time buyers, as down payment requirements are minimal (as little as 3%) and closing costs can be included in the loan amount. Examine FHA loan information to learn if this might be the right program for you.

VA loan guidelines require that a borrower be an honorably discharged former member of the U.S. military as evidenced by a Certificate of Eligibility, obtained from the Department of Veterans Affairs (VA). A VA home loan application is similar to all others with a few additional pieces of information. As you will learn from reading VA home loan information, this product can be even more first time buyer friendly as it requires as little as zero money down and also allows closing costs to be included in your mortgage amount.

As you can see, neither "government" loan is really financing offered by the government but both are excellent financing options in the right circumstances. Compare an FHA and VA loan versus conventional financing to learn the benefits and, to some degree, VA and FHA loan restrictions. You will find the benefits outweigh the minor extra VA and FHA house loan requirements.

FHA interest rates do not differ greatly from regular conforming mortgage rates. You can shop for FHA loan interest rates as you would for a normal conforming loan. It is important to note that an FHA (Federal Housing Administration) loan really does not exist. The FHA does not make direct loans per se. They provide a "guarantee" to approved FHA mortgage lenders that should FHA mortgage loans go into default, they will reimburse the lender for their loss.

Therefore, they set FHA home loan guidelines, they make FHA loan regulations, and, in effect, set FHA loan rules since they are not required to issue their guarantee if they choose not to. Consequently, lenders authorized to make FHA government loans will adhere to FHA home loan requirements to obtain this guarantee.

Since FHA insured loans are not directly made by the agency, they are must be flexible in setting any guideline for FHA loan rates. At the same time, FHA home mortgage lenders are still in competition with others, need to earn a fair interest rate, and cannot be "greedy" to be perceived as hurting their borrowers by the public and the FHA. Consequently, FHA loan rates mirror the general conforming mortgage market rates. Shop around using the Internet, your telephone, newspaper, and library for the best rates and FHA closing costs to get the best offer available in your local area.

The Veterans Administration (VA) has offered their mortgage loan program for many years with great success. While not available to everyone, the program is available to all former U.S. military personnel who have been honorably discharged. You can qualify if you are on active duty, but there are some restrictions.

Qualifying for VA home loan benefits is relatively easy and straightforward. If you are an honorably discharged military veteran you qualify for a VA home mortgage. To submit a VA loan application, you will need a VA home loan Certificate of Eligibility. You can obtain this document from the VA. All you need is a copy of your form DD214, which was completed and submitted prior to your discharge from the active military.

You can now often obtain your certificate online through a service called ACE (Automated Certificate of Eligibility), which is a database with information on former service personnel. Like every other data base, the information is not perfect. In some cases, your information may not be complete, which might prevent the issuance of automatic certificate. In this case, you still should qualify for VA home loans but you should complete VA Form 22-1880, which is a Request for a Certificate of Eligibility.

Your certificate does not grant you a loan or VA home loan amount. It indicates you are eligible for a potential VA loan approval if your application is accepted by a bona fide lender, who is approved to make loans guaranteed by the VA. You still must find VA loan lenders, meet or exceed VA loan qualifications, and meet VA loan requirements. But the first step is to qualify for military VA loans, which you will do with your Certificate of Eligibility.

There are differences in the VA and FHA maximum loan amounts. Always remember, these two programs involve the issuance of guarantees by the agencies, not directly loaned funds. Therefore, mortgage lenders still have the right to make their own decisions on lending decisions. Your individual ability to qualify for the mortgage amount you want is not directly related to these loan limits.

There is technically no maximum VA loan. Practice indicates that lenders will generally lend up to 4 times the amount of a veterans entitlement without requiring a down payment. In 2007, this equates to a loan up to $417,000 with no money down and with a VA home loan guarantee. These calculations and limits can change annually. Another benefit: There is no private mortgage insurance necessary even with no money down.

The maximum loan amount for an FHA loan is a bit more complicated. The current FHA maximum loan amounts range from $172,632 to $312,895. These differ from the maximum VA loan limits because FHA attempts to adjust its loan limits by the nature of the area. If you are in a "low cost" area, your maximum differs from your purchase of a home in a "high cost" area. If you wish to purchase a two to four family home, your loan maximums are also higher than for single family purchases. As a general rule the 2007 loan limit is equal to 87% of the conforming loan ceiling in a high cost area. In 2007 this equals a maximum mortgage of $362,790. In a low cost area the floor calculation is 48% of the conventional loan limit, which, in 2007, equals $200,160. Easy, right? Check into FHA loan limits in your area.

These figures also vary over time, cost of living changes, and by conforming loan limit modifications. If you want to pursue the FHA mobile home loan program, there are additional considerations. Likewise, FHA home equity loan programs also have different FHA loan approval guidelines. The best course of action: Consult with FHA mortgage brokers and lenders to learn about the loan limits for the properties you want. They will give you the most current and pertinent information.

Q. Can I get an FHA loan after bankruptcy?

A. If you have been discharged from a Chapter 7 bankruptcy for two years or more, you are eligible to apply for an FHA home mortgage loan (same rules for VA loans, by the way). If you are in a Chapter 13 bankruptcy and have made all court approved payments on time and as agreed for at least one year, you are also eligible to make an FHA loan application.

Q. Is an FHA loan assumable?

A. Yes. With an FHA assumable loan, you can transfer this loan to a buyer of your home as long as they meet the normal credit criteria of the actual lender. Since FHA is guaranteeing the loan but did not use their funds to make the loan, the lender must approve the potential new holder of the loan in an FHA loan assumption situation.

Q. Is there such a thing as an FHA loan refund?

A. Yes. Since you pay FHA guarantee insurance in a lump sum at closing, if you have owned your home for less than seven years and are now performing a conforming or FHA loan refinance, you may qualify for a refund of some of this insurance cost.

Q. Can I refinance a VA home mortgage loan?

A. Yes. You can get a VA loan refinance, at standard VA loan rates, up to 90% of your home's value and still include closing costs in the loan amount. You can use the cash out as a VA home improvement loan, tuition, or any reasonable purpose. Use a VA home loan calculator to see if you can generate sufficient cash out to meet your needs. Using a VA loan calculator, you will also learn what your new monthly payment might be and determine if you can afford it. Don't forget you'll still have VA loan fees, to meet VA loan credit criteria (which differs a bit from FHA loan credit rules), have a VA loan inspection, and pay market rate for VA loan interest. Don't worry; the VA home loan interest rate is usually equal to or less than many other market rates.

When you face the common questions "What is an FHA loan?", "What is a VA loan?", "What are the differences in a VA loan versus conventional financing?", "What is a VA loan assumption?", and "What are FHA loan amounts?", use the Internet to visit the many sites providing extensive Q & A solutions to these and many other questions you might have.

If you need to perform some light to moderate sized improvements to your home, you should investigate the FHA Title 1 loan program. Using the HUD (Housing and Urban Development) website, you can get all the basic information on FHA loans (including Title 1) you need to determine if one of these programs is right for you.

Title 1 loans are also more versatile than just pure home construction or remodeling loans. For instance, if you want to improve your property by building a barn or shed, preserve an historic homes, make mobile or manufactured home improvements, or even remove trees that have become dangerous to your home.

Another potentially important feature is the repayment term. FHA will insure qualified loans for up to 20 years, providing a very reasonable monthly payment stream. FHA 203(k) and Title 1 programs become even more helpful if you are considering purchasing an FHA loan foreclosure property. Often, since these homeowners have faced financial difficulty for some time, their homes have fallen into major or minor disrepair. While you can make some excellent purchase money deals at lower than market selling prices, you may still need to rehab these properties as a result of FHA loan bad credit situations with the former owners.

Using a FHA Title 1 loan after you purchase the property, assuming you can work within the loan limit and can qualify for an FHA loan, could be a wonderful way to get low cost rehab money to make your new home into your palace.

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