FHA Home Mortgage Program
The FHA Home Mortgage program has been around for some time. The Great Depression caused many to lose their jobs. As a result, they were unable to pay their mortgages payments and then banks were forced to foreclose on these properties. In 1934, the National Housing Act created the Federal Housing Administration. Its purpose was to insure the mortgages and regulate both the interest rates and the terms of these loans. The idea behind this new program was to help more people afford the costs of homeownership.
The FHA Mortgage program provides mortgage insurance to protect against loss in case the homeowner is unable to make the mortgage payments and the property winds up in foreclosure. Since 1934, FHA has insured over 34 million mortgages. The program as originally designed was for low income borrowers and for decades was only small percentage of the mortgage market. However, due to the Mortgage Crisis in 2008 it has become a widely used program that today makes up as much as a third of all mortgages originated.
The benefits of an FHA Mortgage are:
• Low down payment. Typically, as low as 3.5%.
• Lower credit score requirements. Conversely conforming loans and some other government loans can require higher scores many a 640 or above. Some banks and lenders will go as low as a 620 while some will go as low as a 580 credit score.
• Higher debt ratios. Conventional programs allow for a 45% back end debt ratio. FHA lenders will usually allow for a borrower to have a 50% -55% back end debt ratio.
• Co-borrowers if needed. This program allows for what is called a Non-Occupant Co-borrower. An example of this would be a younger person just out of college. They wish to buy a home as they begin their career but lack the income or credit to buy a home. A close relative can co-sign and do not have to reside in the property. Their income, credit, and assets are used to help qualify the borrower for the loan.
• The ability to refinance your mortgage if a lower interest rate is available. This program is referred to as a “streamline refinance.” It is designed to allow borrowers to refinance into a lower interest rate with very little documentation. Usually an appraisal is not required nor is income and assets. The primary factor in this program is if the borrower has paid their mortgage on time for a period of 12 months.
If you would like to see if an FHA home mortgage could help you with your next purchase or refinance I can be reached at 860-334-1354 or email at [email protected]