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First Time Home Buyers Turn to FHA

Posted by:  Chip Poli
2011-11-03 13:30:01

Federal Housing Administration Mortgages

Everyone dreams of buying their first home, in these tough economic times many people feel they will be left out of this life long dream.

Though many have heard of FHA mortgage programs, not many understand the true benefits of obtaining a loan through the FHA (Federal Housing Administration). The main objectives of FHA are to help prospective buyers achieve low 30 year fixed rate mortgages, with low down payment requirements (only 3.5% of purchase price) and flexible underwriting standards.

The Federal Housing Administration is a division of the U.S. Department of Housing and Urban Development.

Federal Housing Administration Mortgages

It is important to understand that the FHA is actually an insurance program, the US Government does not actually lend the money.

FHA mortgage loans are actually funded by select American financial institutions, banks, credit unions or FHA-approved lenders.

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Some of the myths associated with FHA Financing are as follows:

FHA Mortgages take longer to close.

This is not true, the process of originating and underwriting a FHA Mortgage is very similar to conventional or, Fannie Mae / Freddie Mac loans.

The house has to be in perfect condition.

This is not true, in the past FHA Appraisals were required to include a document referred to as a VC Sheet or Valuation Condition Sheet. The VC Sheet requirement was dropped in 2007 and no longer are property conditions a significant consideration.

You must be a low to moderate income borrower.

Not true, FHA is open to any income level, FHA has never had income limits or restrictions in any form.

FHA requires a huge stack of additional paperwork.

OK, there are a few extra documents to sign in order to obtain FHA insurance, however, the amount of time it will take to prepare and sign these additional documents is literally under 5 minutes.

FHA Mortgage packages need to be sent out for Government review.

Again, simply not true, Poli Mortgage Group is a Direct Endorsed “Full Eagle” FHA Approved lender. We do not need to send out our files for additional review. To be clear, we did need to send out a series of “Test Cases” many years ago in order to obtain our DE status but today, we underwrite, close and fund FHA Mortgages in house without a secondary review.

FHA Mortgages carry higher interest rates.

This is certainly not true, FHA Mortgages carry 30 year fixed interest rates that are lower than conventional financing, typically by approximately one eighth of one percent lower or .125% lower.

FHA Mortgage Loan Limits are so low nobody can use it.

FHA mortgage limits, in terms of loan size, are set on a county by county basis. Some counties are a bit lower than others and you should check your county’s limit, if you are curious.

  • Let’s take a look at the lending limit in a county south of Boston called Norfolk County, Massachusetts. As of November 3, 2011 the maximum loan size for a single family home in Norfolk County is $465,750.00, that is plenty of loan for a great home in most cities within Norfolk County.
  • Let’s take a look at Hartford County, Connecticut. The limit for a single family home in Hartford, CT is $320,850, again, plenty of money to buy a great home in Hartford.
  • Providence County, Rhode Island the single family limit is $426,650, the median sales price in Providence Rhode Island is only $310,000.

You can check your county here: FHA LOAN LIMITS BY COUNTY

[caption id="attachment_870" align="aligncenter" width="546" caption="Click the Map for FHA County Limits"]FHA Financing[/caption]

Who can apply for FHA mortgage programs?

The application process is actually very simple. You would call a reputable FHA Mortgage lender such as Poli Mortgage Group and spend about 20 minutes on the phone with one of our mortgage professionals.

Like any other lending program the 3 C’s of underwriting apply.

C– Collateral

C– Credit

C– Capacity

The Collateral is obviously the home, like any program the underwriter will want to protect you from over paying for a home, therefore an appraisal will be required.

Credit is also an important factor. It is important to note that FHA does allow for some flexibility during the underwriting process. Credit score requirements are officially not set in stone by the FHA Insurance program. Some lenders do have credit score requirements in place, this is to protect the integrity of the very important Direct Endorsed designation from FHA.

Capacity, in this case, is your household ability to handle mortgage payments. FHA has been so strong throughout the years because it never allowed a new borrower to the program, avoid supplying income and asset documents for verification.

FHA Streamline Refinance

However, the FHA Streamline Refinance does not always require income and assets to be verified. FHA instituted the “Streamline” many years ago in order to assist existing FHA Borrowers to lower their rate and payment without needing a full underwrite.

The streamline with limited documentation requires that you save a minimum of $50 per month and you can not take cash out, you must only be reducing your monthly mortgage obligation.

Anyone, regardless of creed, race, religion, sex, or marital status, can apply for FHA mortgage programs. There are special terms available for the qualified veterans buying a single-family home, don’t confuse FHA with VA mortgages.

Types of FHA mortgage programs:

Housing and Urban Development and FHA provide loans to purchase existing homes, improve existing homes, buy a recently built home, and to refinance.

FHA mortgages are also available for property types other than single-family residences, owner occupied multiple-family properties and most condominium properties are also eligible.

Note – Loan Limits by county are larger for multi-family dwellings, for example:

The FHA Loan Limits in Middlesex County, Massachusetts:

2 Family Home: $596,250

3 Family Home: $720,700

4 Family Home: $895,700

FHA Rehab or Renovation Loans

FHA Rehab Loans

The FHA does insure mortgages where a buyer can purchase a home and receive additional funds for renovation of the property.

The renovations must be over $5,000 and no more than $35,000.

Contractor(s) must perform all eligible improvements and must be licensed and approved to qualify. Poli Mortgage Group can provide a list of authorized contractors, or you may choose your own, however Poli Mortgage must first approve your contractor(s).

Up to 50% of materials can be disbursed at closing to each contractor with the balance to the contractor upon completion.

Work must begin within 30 days of closing.

Purchases and refinancing transactions apply.

You can download a flyer with more details about the Poli Mortgage Repair and Restore Mortgage below.

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FHA Financing has been the choice for first time home buyers in recent years.

If you are interested in becoming pre-approved for FHA financing, please do not hesitate to call us, we're here to help.

Poli Mortgage Group Currently offers FHA Mortgages in the following states:

Massachusetts, New Hampshire, Connecticut, Rhode Island, Vermont, Maine, Maryland, Florida, Georgia, Alabama, Tennessee, North Carolina, Virginia and Kentucky

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