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7 Important Things about FHA Loans

When the housing industry was enjoying a boom period, FHA loans were fairing badly because zero down-payment loans got people more interested. However, suddenly as prices have begun to fall, FHA loans look more lucrative. Why the sudden shift in tastes? It is because of the security and safety that comes with FHA insured loans. It’s mainly because of these falling prices that the underwriting limit of FHA loans has increased 4 times in comparison to the figures in 2009.

This increase in the qualifying amount has caused more homes to come under FHA’s purview, meaning that you can now buy a high priced house with low down-payment. The low requirements in terms of credit scores and less strictness have also turned the tide in FHA’s favor. If you plan to cash in on this trend, here are a few pointers that you need to know –

1. NAMB Broker and Lenders – Always approach a broker who is approved by NAMB or who features in FHA’s list of approved brokers and lenders.

2. Low Down Payment – The down payment is very low, about 3.5% and even that can be obtained as a gift from a number of institutions. You can approach your employer, an NPO (Non-Profit Organization) or an agency run by government that provides financial assistance with respect to down-payment.

3. Loan Limits – FHA has fixed loan limits for different areas and counties. It depends on your county’s restrictions, type of housing and the area. The limits are varied and are less than $300,000 in some areas while others enjoy a limit of almost $729,000.

4. FHA Approval – Conventional loans have the advantage of low qualifying ratios which isn’t the case for FHA loans. Here, this area is rather stringent and every penny of your income should be recorded for. While other conventional housing agencies have a debt ratio in the range of 28% - 36%, it is 31% - 43% in case of FHA approvals. Also, your income source must be stable and regular for the loan to get approved from FHA.

5. Closing Costs – Contribution of sellers to closing costs is almost up to 6% as compared to 3% that is allowed in conventional loans.

6. Non Occupant Co-Borrowers – It is especially beneficial to first time buyers like college students who can get their parents as co-signing non-occupants. It is very easy to assume the entire loan once the individual starts earning a stable income and improves his finances.

7. Credit Scores – Although underwriters vary with their judgment of your credit scores, having an FHA insured loan automatically improves your chances. The terms are easier and qualifying for the loans become less tedious too. As per the statistics from Jan ’08 to Aug ’09, the credit scores of mortgage loans insured by FHA showed a marked improvement from 621 to 692.

There are chances that things will change and more strictness will be followed in FHA loans. The insurance premiums might rise and down payments might be increased too. So it is best to grab the opportunity while it is still available. To stay updated with the latest news about FHA loans, you can visit the HUD.gov.