The Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes, as well as FHA approved condominiums, in the United States and its territories.
FHA insured loans require mortgage insurance to protect lenders against losses that result from defaults on home mortgages. Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA requirements include mortgage insurance primarily for borrowers at any loan to value with FHA financing. Unlike with a conventional loan, FHA requires mortgage insurance even if your loan amount is under 80% loan to value.
FHA lending limits vary based on a variety of housing types and the state and county in which the property is located. In San Diego, CA:
Single Family $697,500
Duplex $892,950
Tri-plex $1,079,350
Four-plex $1,341,350
Before you start the loan process, you’ll want to be prepared for the loan application. Have your information organized and ready for your loan officer.
- Address to your place of residence (past two years)
- Social Security numbers
- Names, location, and contact numbers of your employers (past two years)
- Gross monthly salary at your current job(s)
- Pertinent information for all checking and savings accounts
- Pertinent information for all open loans
- Complete information for other real estate you own
- Approximate value of all personal property
- Certificate of Eligibility and DD-214 (for veterans only)
- Current check stubs and your W-2 forms (past two years)
- Personal and if applicable, business tax returns (past two years), including current P&L and business balance sheet for self-employed individuals
Fees typically associated with an FHA purchase would be as follows:
- Lender’s origination fee- Typically this should only be required if one is trying to buy down a rate to par or below
- Lender Processing and Underwriting
- Escrow fees
- The appraisal fee and any home inspection fees
- Cost of title insurance and title examination
- Document preparation (by a third party)
- Credit reports (actual costs)- some lenders do not charge this
- Transfer stamps, recording fees, and taxes
- Notary Fee
- Recording Fee
In order to prevent home buyers from getting into a home they cannot afford, FHA guidelines have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios. FHA offers the most lenient debt to income ratios over conventional financing.
MORTGAGE PAYMENT EXPENSE TO EFFECTIVE INCOME
Add up the total mortgage payment (principal and interest, taxes, hazard insurance, mortgage insurance premium, homeowners’ dues (for a Condo or a PUD, etc.). Next, include any monthly debt such as car payments, student loans, minimum credit card payments, and any child support or alimony payments, then take that amount plus the above housing expenses and divide it by the gross monthly income. The maximum debt to income ratio for FHA is typically 56% unless otherwise cut by underwriting.
TOTAL FIXED PAYMENT TO EFFECTIVE INCOME
Before approving a loan, the lender analyzes the integrity of the borrower’s past credit performance. Based on FHA requirements, those who have a good credit history demonstrated by a solid track record of timely payments will likely be eligible for a loan. Potential borrower’s whose credit history is marred by slow payments, poor financial judgment and delinquent accounts is not a good candidate for loan approval and will be considered on a case by case basis. The more compensating factors a borrower has, the better the chance they have to get approved.
