In this video, I gave a quick overview of FHA loans.
Hello everybody and welcome to the Reside Daily Bite; I’m your host, David Doucette and today I want to talk to you a little bit about FHA loans and what all that means. The FHA or the Federal Housing Administration is a division of HUD and from their website I want to read a couple of things…
It’s part of the United States Department of Housing and Urban Development. FHA provides mortgage insurance on single-family, multifamily, manufactured homes and hospital loans made by FHA-approved lenders throughout the US. Borrowers obviously need to meet certain requirements to qualify for the insurance but lenders bear less risk because FHA will pay the lender if the homeowner defaults.
So this is an important concept, if lenders (be it Chase, Wells Fargo or Bank of America) are making what we call FHA loans, those loans are essentially insured by the Federal government, the FHA program. But because of that, some of the guidelines might be a little stricter or there might be more red tape involved. Currently, the FHA has 5.2 million insured single-family mortgages in their portfolio.
So, let’s talk about their requirements for an FHA loan because it’s a good option for first-time homebuyers who don’t have a lot of money for a downpayment. And the minimum downpayment requirement for FHA loan is 3.5% down and many people might not be aware of this. Many people might still be thinking we need to have 20% down by a home where in today’s market you necessarily do not. If you go to FHA loan route, you could have as little as 3.5% down. Also, your FICO score should probably be a minimum of about 620. I’ve heard in some circles 580 but that sounds a little low. It’s more like 620.
It’s typically going to take longer to close in an FHA loan because there is just a little more paperwork in such involved. It might take a minimum of 45 days to close an FHA loan. There is also a loan type for the FHA program called the 203K and that’s for home improvement. There are different guidelines for that but that are an option for homeowners looking to purchase a home and also want to do some work on that home.
At our office at Keller Williams, we have a couple of loan officers over there for Bank of America and they are telling us now that essentially 50% of their business is in fact FHA loans and they’re expected to see more of that as we move through this year.
An interesting note is if you’re considering an FHA loan, the condo building needs to be approved for FHA financing. So if you’re thinking of that, make sure you’re talking to your realtor or your loan officer.
One word of caution, some listing agents -the agents who have the property for sale- might be a little afraid of offers that come in as FHA loans because they might have had a bad experience with FHA loans in the past. Make sure your realtor/real estate agent and your loan officer are very proactive if you’re submitting offers that are FHA loans.
And one of the things I’ll mention is, in LA County, FHA loans should qualify up to $729,750 for our area. You can go online and check your area because the limits will differ by county. You can check out FHA.gov, which will redirect you to the HUD website. Little difficult to poll some of the information; you might be better off doing a Google search to find some more information on FHA guidelines. By all means, talk to your realtor and your real estate agent and also your loan officer and your CPA.
Thank you for tuning in to the Reside Daily Bite; I’m your host, David Doucette.