August 24, 2016
If you are thinking about buying a home and are weighing your options for an FHA home loan, there are some basics you should know about FHA mortgages that can help you better prepare for an FHA loan application.
FHA home loans are for all financially qualified applicants; there are no income minimums OR maximums. Borrowers should know that FHA mortgages are designed to help borrowers at all income levels find an affordable home.
Your debt to income ratio (the amount of money coming in each month compared to your monthly expenses and financial obligations) is an important factor in loan approval, but you will not be disqualified because of an income threshold based on your annual income or monthly income alone.
FHA mortgages allow you to purchase a home for your own personal occupancy. An FHA single-family mortgage may be used on a property that has more than one living unit, but the borrower is expected to occupy one of those units as his or her primary address. The occupancy requirement is non-negotiable.
FHA loans permit borrowers to rent out any other available living units as long as the occupancy requirement is met. At least one borrower obligated on the mortgage must occupy the property.
FHA home loans have interest rates that must be negotiated between the borrower and lender. FHA does not set or regulate these interest rates. FHA loan rules also state that the borrower is permitted to purchase discount points to reduce the rate, and these points must also be discussed and worked out between you and the lender.
The FHA itself does not lender money, nor does it do the lender’s job of verifying the borrower’s application data. In some cases the lender may be required to send the processed application to the FHA for final approval, but the FHA does not do the “heavy lifting” so to speak on the mortgage loan.
When you find a home to purchase with your FHA loan, you will be required to get the property appraised. But an appraisal, regardless of the outcome, is NOT a stamp of approval that the home is defect-free. The FHA and HUD urge borrowers to pay for the optional home inspection which gives you a much more in depth report of the home and its systems.
Even if your home passes the appraisal process, the FHA cannot guarantee the home is free from problems and those who choose not to pay for a home inspection have no recourse with the FHA if problems arise later. You won’t be a fully informed buyer without both an appraisal AND a home inspection.
FHA borrowers have refinance options available to them should the need arise, including a streamlined refinance process that you can use to get into a lower interest rate and/or lower mortgage payment. That’s an important thing to keep in mind, especially for borrowers who choose an adjustable interest rate loan instead of a fixed interest rate payment. You can refinance into a fixed rate mortgage out of an adjustable rate loan when the time is right.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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