July 21, 2017
What is an FHA loan? Simply put, an FHA loan is a kind of home loan that is guaranteed by the FHA and issued by a participating lender. Only FHA-approved participating lenders may offer FHA home loans, and the FHA itself does not lend money to home loan applicants.
What The FHA Loan Program Can Do For You
FHA loans can help you purchase a new home. These homes can be already built, but qualified borrowers also have the option to apply for FHA loans to pay for a home to be constructed from the ground up. Such loans are generally for what is known in the industry as “stick built” housing, which means a home that is constructed on-site rather than a manufactured home which is shipped in sections to the site and assembled.
That’s not to say that you cannot get an FHA mortgage for a manufactured home, it’s simply that such loans are different than proposed construction and have different requirements. It’s important to know that not all participating lenders offer FHA loans for manufactured housing, and the same is true for FHA construction loans. You’ll need to find a participating FHA lender who is willing to work with you for such loans.
FHA mortgages can also be used to purchase townhomes, multiple unit properties up to four units, and even condos. If you are interested in purchasing a condominium unit with an FHA loan, the condo project must be on the FHA’s approved list or added to it. If the property you seek is not currently listed on the FHA’s approved condo project roster, you can work with your participating FHA lender to see if the project is eligible to become added to that list.
FHA loans are also available for those who wish to refinance. That’s true of both FHA-to-FHA loans and non-FHA to FHA refinance loans. You can refinance a VA, conventional, or other non-FHA mortgage using an FHA cash-out refinance loan or a no-cash version of the same transaction. Borrowers with existing FHA mortgages can also explore their option with an FHA Streamline Refinance loan, which allows refinances designed specifically to lower interest rates, mortgage payments, or get the borrower out of an adjustable rate mortgage.
What The FHA Loan Program Cannot Do
New purchase FHA loans cannot be approved for transactions where the borrower wishes to borrow more money than the FHA loan amount (including approved costs rolled into the loan, UFMIP and other factors) for the purpose of getting cash back.
FHA mortgages do not function like personal loans-there are strict rules governing cash at closing time. A borrower is generally not able to get any money at closing time aside from legitimate refunds of money paid up front for expenses later financed into the loan amount.
FHA loans cannot be issued for borrowers who don’t meet both the FHA minimum FICO score requirements (580 or higher for maximum financing) AND the lender’s minimum FICO score requirements, which may be higher. If you aren’t sure how lender standards in this area may affect your transaction, discuss your concerns with a loan officer.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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