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Do You Fit the Fha Mortgage Profile?


Do You Fit the Fha Mortgage Profile?

If you are thinking about buying a home or refinancing your mortgage, you may have been dished up some details regarding an FHA mortgage, and while FHA mortgage underwriters need to digest a full course of FHA loan guidelines, you may just want the meat and potatoes, so here are some menu highlights.

· Low Down Payment Purchase

An FHA mortgage can provide financing to buy a home with a down payment as low as 3.5%. If necessary, FHA will allow certain down payment assistance, such as gift funds from a relative.

· Cash Out Refinance Mortgage

FHA mortgages allow up to 95% loan to value on a cash out refinance, which is substantially more than conventional refinancing, and more than most home equity loan programs. There are some restrictions regarding the seasoning time of ownership and the home valuation. Cash out is limited to 85% for loans over 7,000, and if mortgage payments were late in the last year.

· Flexible Credit Guidelines

FHA mortgage guidelines take into consideration a borrower’s overall credit history, not just the credit score, which is a minimum of 580. A previous bankruptcy only needs to be discharged for two years, and only three years after a foreclosure. Good credit explanations will be required.

· Flexible Qualifying Debt Ratios

The total mortgage payment including property taxes and insurance should be a maximum of 29% of gross income before deducting taxes, and a maximum of 41% of gross income for the mortgage payment plus all other monthly debt payments. These FHA mortgage debt ratios can be higher with compensating factors, such as, good cash reserves, job stability, or a good credit history. If necessary, a non-occupant co-borrower can be added to the mortgage to help qualify.

One other point to keep in mind, an FHA mortgage requires an insurance premium of 1.5% at closing, which can be added onto the loan amount, plus, a monthly insurance premium of .5% added onto the payment. Condos do not require the up-front premium, only the monthly amount.

Rick Smith, working, talking, and writing on mortgage and finance stuff for 20 years. More information about FHA home loans

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