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How Do FHA Loans Work?

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Mortgage loans insured by the Federal Housing Administration are called FHA loans. For FHA loans, the government undertakes to pay a certain amount to lenders. Therefore, lenders who secure themselves in case of problems with repayment behave more flexibly when lending. FHA loans are particularly popular for first-time home buyers. The reason for this is that people who have 580 credit points and above have FHA loans with a payment as low as 3.5%. People with a credit score of less than 580 will have to pay a higher payment. For example, for people with 500-579 credit points, the down payment rate should be a minimum of 10%.

The amount of down payment and credit score are only two criteria for obtaining FHA loans. In order to receive FHA credits, more criteria are required. These are;

1- Persons wishing to receive FHA credits should work in permanent jobs and have worked with the same employer in the last 2 years.

2- The person who wants to get FHA credits must be old enough to sign a mortgage. They must also be legally resident in the United States and have a Social Security number.

3- Instead of the person who wants to get FHA loans, one of the family members can pay the down payment. The minimum deposit amount is 3.5%.

4- Persons wishing to receive FHA loans may only receive these loans for primary housing use.

5- Those wishing to obtain FHA loans should make property valuation from a rating approved by FHA.

6- Borrowers’ front-end ratio should generally be less than 31% of their gross income. Lenders should provide an acceptable justification that the mortgage is a risk. If they do not provide this justification, your mortgage can be approved even at 40%.

7- Borrowers’ back-end ratio should generally be less than 43% of their gross income. Again, the lender must provide evidence that the mortgage is a risk. Therefore,  the mortgage even at 50% is acceptable.

8- In order to receive FHA loans, borrowers should not have experienced bankruptcy in more than 2 years. If you have gone bankrupt during this period, if you prove that the situation that caused the bankruptcy is not under your control and you have managed your money well, this period can be reduced to 1 year, exceptions may occur.

9- In order to receive FHA loans, borrowers should generally not have a foreclosure status for more than 3 years. Exceptions can be made if you have mitigating conditions and have improved your credit score. However, if you have to move to a new area and have not sold your home, it is no exception, and you have to be excluded from export for 3 years.

10- In order to receive FHA loans, the property must be at a certain minimum level during the evaluation. If this does not meet the condition and the seller does not meet the required conditions, you must pay the necessary repairs at the time of closing. This means that the repairs will be kept in custody until the repairs are completed.

FHA loans work

Those who want to get FHA loans must pay FHA mortgage insurance. In this way, in case of problems in repayment, lenders are protected. The other payment faced by those who would like to receive FHA loans is; The two types of mortgage insurance premium; Upfront mortgage insurance premium and Annual mortgage insurance premium. The first is the payment of 1.75% of the loan amount as a premium.  The second one is the premium payment which varies between 0.45% and 1.05% depending on the loan amount, maturity and initial loan – value ratio.

For example, if you receive $ 150000 for an FHA loan, you will have to pay $ 2,625 in advance mortgage insurance and $ 675 to $ 1575 depending on maturity. The annual premium is divided into 12 months and received as monthly payments. These premiums are often not canceled. In order to cancel, you must pay for a loan other than FHA or sell your home. You can apply for FHA loans more than once to receive primary housing. The last thing you need to know about FHA loans is that the lender is limited to not paying more than 3% to 5% of the loan amount at the closing costs.

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