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There are several reasons why a borrower would want to consider applying for an FHA loan. You may want to buy a home, but you don’t have a down payment that a conventional mortgage would require. You would like to refinance your property, but you don’t have the required amount of equity in your home, or you might have had some credit issues in the past that has given you an unhealthy credit score.

What is the Federal Housing Administration?

The Federal Housing Administration, commonly known as “FHA,” is part of the U.S. Department of Housing and Urban Development (HUD.) The program was created for low income individuals, or families that might need a little help in the home ownership process. FHA does not fund loans; they insure residential mortgages for FHA approved lenders in case a borrower defaults. This allows borrowers to qualify with lower interest rates and be subject to less strict underwriting guidelines.

FHA Mortgage Requirements for Purchases and Refinances

  • FHA provides insured mortgages for single family homes, multiunit homes, as well as condominiums
  • FHA loan maximum can vary per county; however, $521,250 is the average for most counties. You can check what your county’s maximum loan amount is here
  • As of late 2009, the minimum down payment has risen from 3% to 3.5%
  • You must have two years of steady income and your DTI (debt to income ratio) cannot exceed 29%. Meaning, if you have a monthly income of $3,000, your mortgage payment cannot exceed $870, which is 29% of your monthly income
  • The borrower cannot have a credit score under 580, or 620 depending on the lenders’ guidelines
  • The first mortgage to be refinanced must already be FHA insured and current
  • The new FHA refinance must reduce the borrower’s monthly principal and interest rates with a cash-out no greater than 85% loan to the value of the home
  • A bankruptcy must have been discharged for a minimum of 2 years and has not had a foreclosure for at least 3 with unblemished credit since
  • Minor collection accounts do not need to be paid in full in order to qualify for the loan. Judgments, on the other hand, must be paid in full.

These are the latest FHA mortgage requirements from HUD as of  the changes that were made in late 2009. If anything should change in the mean time, please let me know and I will update the requirements immediately.

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New Options For Mortgage Modifications

by Scott Skyles on April 1, 2013

in In The News

On Wednesday, it was announced by the Federal Government that there is a new loan modification program available for homeowners.  This new program is specifically designed to help a larger percentage of homeowners, given the new program does not require the borrower to prove their income or financial hardship status.

The Streamlined Modification Initiative requires that borrowers with home loans that are backed by  Fannie Mae or Freddie Mac must be at least 90 days past due on their current mortgages,  and they must be able to  make three consecutive trial payments on time. This new program is headed by the Federal Housing Finance Agency, the agency that regulates both Fannie May and Freddie Mac.

Initiative Explained

Past programs, including HAMP, or Home Affordable Modification Program required all borrowers to show proof in documentation of their financial situations, including income and financial hardship information.  The requirement of this proof led to many mortgage servicers being unable to provide modifications for risky borrowers, which in turn minimized the overall effectiveness of the modification programs themselves.

Starting July 1, 2013, the new initiative will allow for the more lenient requirements.  By this date, all mortgage servicers are required to contact all delinquent borrowers by mail and offer them a chance at loan modification.

The new initiative will provide borrowers with a new interest rate that is either equal to or lower than the current rates they are paying.  The rates will be based on the typical averages of 30-year fixed rate mortgages, and borrowers will be allowed a longer term-up to 40 years.  Additionally, any borrower that owes more money on their homes than the actual home is worth will not be required to pay any interest on up to 30% of the overall unpaid balance.  The predicted savings on monthly mortgage payments is around 30% per borrower.

Eligibility Requirements

Eligibility requirements for the new program state that homeowners must be currently between 90 days and 24 months past due  on their loans, and their first lien mortgage must be at least 12 months old.  Additionally, the total amount that the homeowners currently owe on their mortgage must be at least 80% of the home’s total value.

The FHFA has stated that there are various screening measures in place that will make certain this new initiative program cannot be exploited-in other words, homeowners that purposely stop paying their mortgages will not be able to qualify for a mortgage modification.

Currently, the FHFA does not have a specific number of expected borrowers for the new program, but a recent pilot program showed that 70% of individuals that were offered the new program were willing to participate in the trial, and 50% of those individuals actually obtained a loan modification.

Currently, it is estimated that 1 in every 5 homeowners owe more money on their mortgage than the actual value of their home.  This alone is what is slowing down the overall improvement of the real estate market.

In their fourth quarter, Fannie Mae and Freddie Mac have provided assistance for 130,000 homeowners in order for them to avoid going into foreclosure.  Since 2008, they have helped approximately 2.7 million mortgage borrowers avoid foreclosure completely.  This calculation includes 1.3 million borrowers who were saved through repayment and forbearance plans, loan modifications, and short sales.

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