What Is FHA?

I interviewed one of the best loan officers and members of my team, Andrew Ginter recently regarding obtaining FHA (Federal Housing Administration) financing when buying a home. Below are the questions and answers. If you have any questions, please contact Andrew and he'll be more than happy to talk with you.


What is FHA? An FHA loan is a government backed insured loan for residential home purchases. The benefits are enormous and its available for all types of home buyers. When you see HUD homes for sale, they are owned by the government, FHA.

What are the current rates with FHA loans vs conventional? A 97% Loan to Value FHA rate is 5.875% where a 97% Conventional rate is 6.125% (assuming a 680 score or better)

What's the benefit of going FHA vs Conventional? FHA is easier on Credit restrictions... For instance, conventional loans are all priced off of credit score today so anything below a 660 score means that 6.125% I just quoted becomes more like 6.875%. FHA has no specific credit score requirements, generally you don't any rate adjustments until you go below 600 scores for FHA, and alternative credit can still be used for people with no real established credit history. FHA is also much more lenient regarding gift funds for closing and co-signers. The last biggie... FHA allows 6% seller concessions and conventional only allows 3% now across the board (even in community lending programs or OHFA).

Are there still Ameridream programs being used and what other programs out there enable a buyer to put no money down? Right now DAPs (down payment assistance programs) are still allowed. Ameridream and Nehemia are both appealing HUD's decision to disallow them, as that appeal process goes on they will be allowed.

What are the specific guidelines of FHA qualification? The house must be an owner occupied residence. Max Loan amount is almost $299,000. All borrowers must be 2 years past a discharge date on chapter 7 Bankruptcies, and 12 months into a chapter 13 bankruptcy with documented on time payment to the trustee. Property must meet FHA requirements (needs to be fairly livable). Borrower's monthly payments on credit debts (including future house payment) must be no more than about 43% of gross monthly income. Self-employed people must show two years to income on taxes to use any of it. Collections and Judgements need to be paid off generally (except older medical collections).

What's the best reason to go FHA if you're a home buyer? Rates are better, mortgage insurance is lower, underwriting is more lenient, loan is assumable for a future buyer, cost is generally lower, it is the only thing left that resembles a no money down loan program.

Do you foresee any major changes with FHA in the future? DAPs will probably go away and they may employ a risk based pricing system just like conventional down the road which would not be good for future FHA borrowers. May become a true 100% program which may be good.

Any other information that is beneficial to an FHA borrower? Any buyer looking to spend 3% of a purchase price or less must know that FHA is by far their best option. There is no part of a conventional loan that is better than an FHA with little or no down payment involved.

Andrew has helped many of my clients (including myself and family) finance and refinance their homes. He is available anytime to talk with you or explain different loan programs finding one that best suits your needs. 440-781-8737 or you can just contact him here. Thanks Andrew!