FHA loans have limits on credit score, debt-to-income ratio, and mortgage amount, and require a 3.5% down payment, mortgage insurance, and an FHA-approved home appraisal. The property must be used primarily as a residence, and there are limitations on the amount of the mortgage. FHA pays for itself through profits earned by working through lenders to provide loans. The property associated with the loan must meet certain standards to qualify for an FHA loan.
The Federal Housing Authority (FHA) offers loans to qualified homebuyers. The most common FHA limits, or loan restrictions, are credit score, debt-to-income ratio, and mortgage amount. In 2011, FHA loans generally also require at least a 3.5% down payment, mortgage insurance, and an FHA-approved home appraisal.
FHA loans are available for residences. One of the FHA limits is that only a portion of the property, no more than 25%, can be for business or commercial use. An FHA loan is primarily designed to help people become homeowners. Therefore, one of the limits of the FHA is that the property must be used, for the most part, as a residence. Loans are available for properties with up to four dwelling units.
There are also limitations on the amount of the mortgage. Typically, the maximum mortgage is 115% of median home value for a given area. The maximum is higher for areas with higher housing costs than for areas with lower housing costs. It also varies by the number of residential units on the property, so there is a higher maximum for a four-family unit than there is for a single, two-family, or three-family unit.
Traditionally, FHA limits for an applicant’s debt-to-income ratio and credit score are more lenient than other loan limits. In some cases, the applicant’s debt-to-income ratio can be as high as 55%, and the credit score can be fair to good. People who have filed for bankruptcy may qualify for an FHA loan within two to three years of filing if current credit is in good standing. Similar guidelines apply to people who have experienced a foreclosure.
Although FHA is part of the US Department of Housing and Urban Development, FHA pays for itself through profits. He earns money because he works through lenders to provide loans. A lender owns the loan, which is insured against default by FHA, but the cost of this service is passed on to the buyer by requiring mortgage insurance. There is a 1% initial charge plus monthly premiums for mortgage insurance due at closing. Typically, when the loan is paid off at 78% of the property’s value, mortgage insurance is no longer required.
The property associated with the loan must meet certain standards to qualify for an FHA loan. An appraisal typically includes analyzing the property in comparison to several other similar properties in the area, as well as a thorough inspection of the property looking for any liability that might cause the property to be worth less than comparable examples. An FHA appraiser must provide documentation of these findings before the lender and buyer can close on the mortgage.
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