FHA Loans

What is an FHA Loan?

FHA Loans are insured by the Federal Housing Administration. FHA loans have less strict credit score and down payment requirements than conventional loans, they are also typically one of the first loans that becomes available after a housing event (short sale, foreclosure or bankruptcy). For many home buyers, an FHA loan is an ideal option for their first home because there is only a 3.5% down payment requirement, and eligible gift funds or down payment assistance programs can be used toward the down payment and/or closing costs.

FHA loans can be used to purchase a owner occupied, primary residence single family homes, eligible condos, PUDs, 1-4 unit properties, double wide manufactured homes and modular homes.

Types of FHA Loans:

FHA 203(b) loan  - This is the most common one. When someone refers to an FHA loan without additional terms added on, this is probably what they mean. This loan is for purchase or refinance of owner occupied, single family homes with 1-4 units or manufactured homes with a permanent foundation and can have either a 15 or 30 year loan term.

FHA 203(k) loan - This loan is used for the purchase or refinance of a home that is in need of repairs or upgrades. The costs of rehabilitating the home are financed into the loan and placed in an escrow account to be used to pay the costs after the loan closes.

FHA Home Equity Conversion Mortgage (HECM) - A HECM allows a borrower 62 years of age or older to convert equity in their primary residence into a line or credit or lump sum. The loan does not have to be repaid until the home is sold or the borrower(s) are no longer living in the home, after which the proceeds of the sale of the home are used to repay the loan.

FHA Section 234(c) loan - This is a 30 year loan for eligible condominiums, qualifying requirements are very similar to the 203(b) loan.

FHA Streamline Refinance - This is a type of refinance from one FHA loan to another FHA loan that requires less paperwork and, often, no appraisal, to complete.

FHA loans typically require both a one time mortgage insurance payment (MIP) at closing and a monthly mortgage insurance payment. This can be removed later by refinancing into a conventional loan (once 20% or more in equity has accumulated in the home).

Appraisal Requirements:

All FHA appraisals must be completed by a HUD approved appraiser who will check for conditions required for an FHA loan:

• Must have a double strapped water heater and carbon monoxide detector (California only)
• Must have a fully functional kitchen and working utilities (a range/oven is not required, however)
• If the roof is in need of repairs and has three or more layers it must be replaced
• Self-closing mechanism on garage door
• No peeling paint in homes built before 1978

They will also look at the overall condition and quality of the home, as any appraiser would, to learn more about the appraisal process visit our Appraisal Guide