FHA Mortgage Information

Search Connecticut Homes · Connecticut School Resources · Fairfield County Maps

Federal Housing Administration, a government agency insures certain loans falling within its criterion like debt-income ratio less than 41% etc. Since the loan is insured by government, lenders give more favorable terms to these kinds of loans. Lets see the two important

• FHA Purchase
• FHA Refinancing

FHA Purchase

There are clear advantages if you go for FHA Loan. Outlined below are some of those. And you can notice the advantages outweigh the disadvantages. Advantages of going for an FHA

An FHA loan can be originated by any approved lender. The lenders look more favorably at the terms since the government is backing up the loans. This favoritism tends towards lenience they would not give otherwise to other kinds of loans.

Perhaps one of the most attractive features of the FHA loan is the down payment which can be as low as 3%. Further the sellers are allowed to  pay up to 6% of the purchase price, to cover the closing costs.

If your credit history for the past 12-24 months is satisfactory, the lenders may not consider your credit scores in the approval process.

Last but not the least advantage in our list is that it allows for non-owner occupied co-borrowers on the loan, with no penalty. This is a huge advantage if you need to have your parents or another family member sign on the loan, to help you qualify.

Disadvantages:

An extra upfront premium of 1.5% is to be paid to cover the insurance. You could avoid that if you go for a conventional loan. This amount is charged on almost all the kinds of FHA loans.

The disadvantage comes from the fact that you need to pay for this for a period of 5 years regardless of your loan-to-value going below 80% as against the conventional one wherein you need not pay for insurance once the loan-to-value goes down the 80% mark.

The last disadvantage with the FHA loan is the strict income to debt ratios. If your income to debt ratios are over 41%, you will have a difficult time qualifying for an FHA loan.

FHA Refinancing options:

FHA Streamline

Streamline refinancing is the most popular type of refinancing with FHA refinancing. This is so because of the limited number of documents it requires and low closing costs (relatively). There are no credit scores, no credit histories neither will be the income-debt ratios, as long as you are an FHA loan holder, trying to lower your interest, and been current on your mortgage payments last year, you should qualify for a Streamline refinancing. The simple things you need to provide are - deed of trust on your current loan, your SSN(Social Security Number) and any other document the lender asks for. You can chose from two options there after:

FHA Streamline WITHOUT Appraisal

You have to be careful about choosing this option because of your refinancing without an appraisal, your loan amount will be limited to your original loan amount. You will not be able to exceed this amount. This may seem like it wouldn't be a problem initially but consider the costs like closing costs, opening an escrow account with your prepaid insurance, taxes etc. If you can manage this out of your pocket, then no problem. But if you want these costs to be added to the loan amount, see that the total amount does not exceed the original loan amount.

If you have calculated and came to know that you are going to exceed the original loan amount, then what do you do? May be you should go speak with your lender and check if they would pay your closing costs and prepaids. With a slightly higher rate, you can get it done by the lenders. If you find your lender not doing this and you are sure the amount is going to exceed the original loan amount, then you better go for the ordering an appraisal at an extra cost.

FHA Streamline WITH Appraisal

You have more options if you go for streamlining with Appraisal. The maximum loan amount you would be qualified under this is the lower of the following two:

Note:

You need to pay the Upfront Mortgage Insurance Premium of 1.5% even if you have paid it earlier when taking the original loan. And this amount does not affect the figures already shown above.

You will receive a proportionate refund from the original insurance premium payment you made when you have acquired your original loan.

For Cash-Out FHA refinances, you are limited to 85% loan-to-value. The amount can be utilized to pay off any other debts etc. in this case you need to submit all the documents for the verification of income, assets, credit history etc., Finally will be required to order an appraisal.

FHA Regular Refinance

Lastly if you do NOT have an FHA loan right now, you still can refinance into an FHA loan. In order to do so, the lender will need a full credit package, and you will not be able to streamline this process.