FHA Home Loan

FHA home loans are government financing arrangements backed by the Federal government and are usually easier to qualify for compared to a conventional arrangement. An FHA home loan will usually finance 97% of the entire financed amount, and require only 3% down. The Department of Housing and Urban Development (HUD) insures these agreements, which have several variations available. Such financing is available as standard fixed rates, rehab loans, condominium loans, adjustable rate mortgages, energy efficient mortgages, hybrid adjustable, two to one buy-down, and reverse mortgages for seniors.

Advantages of this type of financing also allows for closing costs to be obtained through government agencies, non-profit organizations or through a gift received. A monthly insurance premium is usually cheaper for Federally secured financing versus a conventional agreement, and they are available to anyone, not just first time homebuyers. One disadvantage to an FHA home loan might include a limited amount. If the borrower wishes to purchase a property that exceeds the financed amount allowed through an FHA finance, then the additional amount would have to be part of the down payment.

This is a good choice for first time buyers who need help in qualifying for a home finance, because this financing option doesn't include income limits or strict credit scoring towards qualifying. FHA home loan documentation includes income verification, liability information, and proof of funds to close. Paycheck stubs for at least one month, showing year to date earnings are required for FHA home loans. The last 2 years of W-2's for salaried and the last 2 years tax returns for self-employed individuals are required as well. Additional documents include the last two month's of bank statements and statements for investment accounts.

Derogatory credit history needs documented explanations including discharge paperwork for bankruptcies. Other requirements would include personal identification, and current landlord information. An FHA lender will handle other documentation requirements such as, title reports, credit reports, appraisals and surveys. It is best to disclose all personal information requested and thereby rest easy knowing that all the cards are on the table. "I have chosen the way of truth: thy judgments have I laid before me. I have stuck unto thy testimonies. O Lord, put me not to shame" (Psalm 119:30-31).

The cost for some of these documents may be passed on to the borrower. FHA home loans pay for allowable closing costs only. The lender is required to cover some of the non-allowable closing costs. Allowable closing costs usually include the appraisal, credit report, compliance inspection, escrow fee, home inspection costs, notary fee, recording fee, flood certification fee, title insurance costs, etc. Non-allowable closing costs through an FHA home loan may include a bring down fee, processing fee, documentation preparation fee, documentary transfer stamp tax, inspection fee, loan tie-in fee, photo fee, tax service fee, underwriting fee, etc.

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