Top 10 Most Frequently Asked Questions About FHA Loans

FHA loans can be a great way to get a mortgage, but they have their own set of rules and guidelines that must be followed. We sat down with Williamsport mortgage brokerage Principle Home Mortgage to pose some frequently asked questions about FHA loans.

Q: What is an FHA loan?

PHM: FHA is the Federal Housing Administration. This agency among other things insures mortgages underwritten to FHA guidelines. This insurance facilitates the FHA lending programs. The insurance is a protection to the bank that lends the money.

Q: Do I quality for an FHA loan?

PHM: FHA mortgages are typically easier to qualify for than other loan types. They are more forgiving in relation to credit and debt to income ratio. This is really a case by case scenario.

Q: What’s the advantage of an FHA loan?

PHM: Usually this type of loan allows for less out of pocket expenses. FHA rates are far more aggressive for lower credit score borrowers compared to conventional loans. These types of mortgages are certainly more forgiving in relation to credit history and debt to income ratio.

Q: Are there mortgage refinance options available with FHA mortgages?

PHM: Yes, FHA can be used to refinance your home or to purchase a home.

Q: What is the FHA home equity Conversion Mortgage? Is it right for me?

PHM: This is a reverse mortgage. Anyone on the deed to the home must be a minimum of 62 years old to qualify. This loan is called a reverse mortgage because it is a negative amortization mortgage. As opposed to paying interest each month on a forward mortgage you will not have a mortgage payment associated with the reverse mortgage. The interest that is accrued will be stacked onto your existing principle balance on a monthly basis. That means the balance grows each month. The good thing for the client is there is no maximum balance that is set. So a person could theoretically live until 120 years old and have a balance that far outweighs their home value and the bank can't do anything about it as long as that person lives in the home.

Q: Will I need a big down payment with an FHA mortgage?

PHM: FHA typically requires a 3.5% down payment. This is not considered a large down payment by industry standards.

Q: Do I have options for an FHA mortgage?

PHM: FHA does offer both fixed and adjustable rate mortgages but in general the adjustable rates are not a large enough difference in savings to get people to use the program. In my opinion the fixed rate option is more secure and more attractive overall.

Q: Is there a maximum amount I can get from an FHA loan?

PHM: FHA sets a limit of $294,515 for a single family residence in Lycoming County Pennsylvania. This amount can vary by county. The amount increases for 2,3 and 4 unit properties. A multi unit must be owner occupied though. Which means the buyer must live in one of the units. The other units can be rented out for income.

Q: I don’t have a great credit score - can I still qualify for an FHA loan?

PHM: FHA doesn't actually set a minimum credit score but they do set credit guidelines. This means that you can have a low score and still qualify as long as you meet the minimum credit requirements. Contacting a mortgage broker is the best idea here so you know where you stand. If they are a good mortgage broker they will advise you on what to do in order to qualify if you don't qualify currently.

Q: Any other tips for someone considering an FHA loan?

PHM: This is a great loan for a first time home buyer to start building equity. Waiting to buy a home in my opinion is not usually the best strategy. FHA really makes this an option for a lot more people compared to other financing options. If you think about it, every year you wait to buy a house, homes become more expensive. Home prices usually outpace pay increases as well. So buying sooner rather than later and taking advantage of home equity growth is something to consider. FHA makes this a realistic option for more people.

To learn more about FHA loans, contact Williamsport mortgage broker Principle Home mortgage at (814) 308-0959.