Your Complete Guide to the FHA Home Loan

  1. SECTION 1What is a FHA Loan?
  2. SECTION 2Am I Eligible for a FHA Loan?
  3. SECTION 3FHA Loan Benefits
  4. SECTION 4FHA Loan Rates
  5. SECTION 5First-Time Homebuyers
  6. SECTION 6FHA Jumbo Loans
  7. SECTION 7Refinancing with a FHA Loan
  8. SECTION 8Contract Guidelines
  9. SECTION 9The FHA Loan Process

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What is a FHA Loan?

 Video: The FHA Loan Process

A FHA Home loan is one that is through the Department of Housing and Urban Development (HUD). Unlike conventional loans that are supported by Fannie Mae and Freddie Mac, FHA home loans are supported by HUD. HUD is a Federal Agency responsible for national policy and programs that address America's Housing needs, that improve and develop the Nation’s communities, and enforce fair housing laws. HUD has a record of accomplishments that spans more than 30 years. Thousands of communities and tens of millions of Americans have benefited from HUD's housing and community development programs.

FHA home loans have been streamlined through the years to provide access to the mortgage market for all types of buyers but especially first-time home buyers and buyers who might be credit and down payment challenged. A FHA home loan is a large sum of money lent to a borrower by a mortgage lender. FHA home loans often have higher lending requirements but the benefits of meeting those requirements are returned with competitive rates, down payment requirements, and competitive offers on your future home. When a prospective homeowner is ready to shop around for a mortgage, they will work with their Orbit Home Loan mortgage broker. This is a financial professional who brings together borrowers and lenders. They are not lenders and, as such, do not use their own funds to advance mortgage loans. Instead, they act as intermediaries, helping consumers comparison shop, bringing them a variety of quotes from different lenders at one time.

If you're ready to start your FHA loan, check your eligibility or have specific questions on the FHA loan, talk with a Orbit Home Loans specialist today.

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How Do FHA Loans Work?

FHA homework like this:  Your Orbit Home Loan mortgage broker (Mortgage Banker) works on your behalf to qualify you with the most competitive lenders in the nation. FHA home mortgages are typically lent out with 15 or 30 year repayment periods; the one that’s right for you depends on your personal finances, your income, and the interest rate you can secure. Once you are qualified, completed the process and have purchased the property your lender will sell your loan to HUD but still function as the servicer of your loan and will be responsible for collecting your payments. There is a possibility that your servicer may change so do not worry if that happens, it is normal.  It is important to remember that your payments include your promise to pay back the lender with interest so they can pay HUD.

Interest is the percentage rate you pay to the lender and then to HUD for the trouble of lending you money. This is how the HUD and makes money from having lent you such a large sum. Interest rates are either fixed or adjustable and interest rates normally adjust daily but can adjust multiple times a day. The interest rate you receive on a conventional loan will also vary based on your own personal financial profile.

 

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Types of FHA Loans

1. Home Equity Conversion Mortgage (HECM) 

This is a reverse mortgage program that helps seniors ages 62 and older convert the equity in their homes to cash while retaining the home's title. The homeowner can withdraw the funds in a fixed monthly amount, a line of credit, or a combination of both.

2. FHA 203(k) Improvement Loan 

This loan factors the cost of certain repairs and renovations into the amount borrowed. It's great for those willing to buy a fixer-upper and put some sweat equity into their home.

3. FHA Energy Efficient Mortgage 

This program is similar to the FHA 203(k) improvement loan program, but it’s focused on upgrades that can lower your utility bills, such as new insulation or solar or wind energy systems.

4. Section 245(a) Loan 

This program works for borrowers who expect their incomes to increase. The Graduated Payment Mortgage (GPM) starts with lower monthly payments that gradually increase over time. The Growing Equity Mortgage (GEM) has scheduled increases in monthly principal payments. Both promise shorter loan terms.

5. Traditional FHA Purchase Loan

Qualified Buyers can use the FHA loan to purchase new or existing homes. FHA purchase loans also allow Qualified Buyers to buy single-family homes, condominiums, manufactured homes, multiunit properties (like a duplex) and even new construction.

Policies and guidelines can vary by lender. Some lenders may not provide all of these types of FHA purchase loans.

Exploring The FHA Loan

FHA Purchase Loan

The FHA loan program has helped generations of borrowers achieve the dream of homeownership. Let’s take a closer look at how FHA loans work and what it takes to start the conventional loan process. Your Orbit Home Loan Broker will evaluate your qualifications for an FHA loan as it would any mortgage applicant, starting with a check to see that you have a valid Social Security number, reside lawfully in the U.S., and are of legal age (according to your state laws). 

Qualified borrowers can use a FHA loan to purchase new or existing homes. FHA purchase loans also allow qualified borrowers to buy single-family homes, condominiums, manufactured homes, multiunit properties (like a duplex) and even new construction. Policies and guidelines can vary by lender. Some lenders may not make all of these types of conventional purchase loans, but Orbit Home Loan does.

FHA Cash-Out Refinance

The FHA Cash-Out refinance allows qualified homeowners to refinance their mortgage and take out cash from their home's equity. The FHA cash–out refinance lets you refinance up to 80 percent of your home's value in-order to cash–out your equity. Like other cash–out loans, the FHA cash–out refinance works by taking out a larger loan than what you currently owe on the home. These loans are open to borrowers with and without current FHA loans. Qualified homeowners can typically refinance up to 90 percent of their home's value.

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FHA Loan Limits

The conforming loan limit is designated by county. Most counties are assigned the baseline conforming loan limit. However, there can be variations on the conforming loan limit based on regional economic differences. Generally, the most you can borrow with an FHA loan is $420,680. That applies to single–family homes, with limits increasing for 2–, 3–, and 4–unit properties and in higher–cost counties. The maximum FHA loan amount for a 1–unit property in a high–cost area is $970,800. And for a 4–unit home, it's nearly $2 million.

What is the FHA funding fee?

Together, the Upfront Mortgage Insurance Premium (UFMIP) and the Mortgage Insurance Premium (MIP) make up the FHA funding fees. This is a necessary fee you must pay when entering a mortgage agreement which is backed by the FHA, in order to protect lenders from loss. So, you know that there are two types of FHA insurance. The first one which is charged up-front is called an FHA funding fee. Basically, this fee keeps the Federal Housing Administration in business. Actually, every FHA loan closing pays FHA 1.75% of the loan amount. For examples, a $100,000 loan pays FHA $1,750 or $200,000 loan pays them $3,500. Besides keeping FHA in business, their funding fee is one of the factors that keep FHA interest rates low. Plus, it takes the risk off of the American taxpayer paying for the program.

To calculate your FHA Funding Fee, use Orbit Home Loans' Funding Fee Calculator here.

Is The FHA Loan a Good Option?

FHA loans are arguably the most powerful loan option on the market.  FHA loans are tailored for first-time home buyers who may need a little assistance or for those who may not be in the best position to buy a home. The benefit of this loan is that you can have a lower credit score, you are required to put down as little as 3.5% and best of all lower interest rates. 

How Do I Get a FHA Loan?

Talk with a trusted lender that knows FHA loans and how to get the most from this hard-earned benefit. The process typically starts with getting preapproved, which can often be done in minutes using your phone, laptop or tablet. 

Loan preapproval is a key first step before making an offer on your dream home. Having that preapproval letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing. 

Start my FHA loan with Orbit United Home Loans -- the Nation's #1 FHA purchase lender

If I’ve previously used a FHA loan, can I use it again?

Yes, this is not a one-time option. Once you earn the FHA loan benefit, it's yours for life. You can reuse the FHA loan over and over again, and it's even possible to have more than one active FHA loan at the same time.

Continue to learn more about FHA loan in our next section.

 

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