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FHA Loan information

FHA loans are made by FHA approved lenders. The Federal Housing Adminstration does not make loans, but they insure the lender in the case of default.

Mortgage insurance is how the FHA makes their money. Their are 2 types of mortgage insurance, or MI. The first type is called the upfront mortgage insurance premium, and this is 1.75% of the loan amount. Additionally, an annual MIP is charged and spread over the 12 months. This varies and can range for .8% to 1.05% of the loan amount. The upfront MIP can be put into the loan and financed. This is often the case.

On a purchase price of $100,000, the first mortgage loan would be for 96.5% or $96,500. (3.5% down payment unless using secondary financing). So on top of the $96,500 would be added the upfront MIP. ($96,500*.0175= $1688.75) Thus the total loan amount would be for $98,188.75. For information on using secondary financing with a traditional 96.5% 1st mortgage see FHA no money down or FHA Sapphire program

Qualifying for an FHA loan requires full income documentation. Normally the debt to income ratios cannot exceed 55% on the back end. The means that all debt including housing payment, taxes, insurance, mortgage insurance, homeowners association (if any), and other consumer debt as seen on the borrower's credit report must not exceed this ratio. Full income documentation means for an employee, most recent one month of paystubs and normally 2 years of W2s. For a self employed person, 2 years of tax returns are required. If the borrower owns 25% or greater in any business, then the business tax returns are also required. Personal taxes are required when someone owns rental properties as well.

If you had a major credit event such as a foreclosure or short sale you may be able to qualify for the FHA back to work. If you fell behind on your loan payments for a 6 month period of time due to a loss in income and you can document this, you may be able to qualify under this program. You would need to demonstrate that your income returned to normal after the period where the loss occurred.

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