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FHA: Basic Home Mortgage Loan 203(b)

HOW IT WORKS
By serving as an umbrella under which lenders have the confidence to extend loans to those who may not meet conventional loan requirements, FHA's mortgage insurance allows individuals to qualify who may have been previously denied for a home loan by conventional underwriting guidelines. 

FHA loans benefit those who would like to purchase a home but haven't been able to put money away for the purchase, like recent college graduates, newlyweds, or people who are still trying to complete their education. It also allows individuals to qualify for a FHA loan whose credit has been marred by bankruptcy or foreclosure.

NUTS AND BOLTS
The FHA home loan is the 203(b) is one of the most popular FHA program. This fixed-rate loan often works well for first time home buyers because it allows individuals to finance up to 97 percent of their home loan which helps to keep down payments and closing costs at a minimum. The 203(b) home loan is also the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit, or government agency.

Insurance on FHA mortgages are often rolled into the total monthly payment at 0.5 percent of the total loan amount which is roughly half of the price of mortgage insurance on a conventional loan. After five years or when the loan balance reaches 78 percent, the additional mortgage insurance is typically met and therefore drops off the total monthly payment.

GUIDELINES

  • Debt Ratios -- It is not necessary to meet a minimum income requirement in order to qualify for a FHA loan but debt ratios specific to the state in which the home will be purchased have been put into place to prevent borrowers from getting into a home they cannot afford. This is done through a close analysis of income and monthly expenses.
  • Down Payment -- The minimum down payment is determined by the acquisition price, which is the sum of the sales price plus the closing costs. Your lender can assist you with the calculations.
  • Gift Funds -- The 203(b) home loan is also the only loan in which 100 percent of the closing costs can be a gift from a relative, non-profit or government agency. Gift funds can be used for down payment, closing costs, prepaids, and/or buydowns. Please note, gift must come from an approved source.
  • Eligible Properties -- Must be owner occupied, 1-4 family houses, FHA approved condos, or FHA approved PUDs.

FHA MORTGAGE LIMITS LIST -- FHA FORWARD
Franklin and Delaware counties:
 1 family      2 family      3 family     4 family     Median Sale    Last Revised      Limit Year
$316,250    $404,850     $489,350    $608,150      $275,000        01/01/2015         CY2015

UNDERWRITING RATIOS
 Housing Ratio: 31% of gross monthly income
 Debt Ratio: 43% of gross monthly income (No longer include child care as a debt)

CREDIT COUNSELING
 None required.

MORTGAGE INSURANCE
 Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. It's required for borrowers making a down payment of less than 20 percent. FHA mortgage insurance is called MIP and its up-front expense on a house is 1.50 percent of the sale price, which can be financed. There is also a monthly fee of 0.5 percent added to the payment.

GEOGRAPHIC RESTRICTIONS
None
 
CONTACT: For More Information
Contact FHA approved lenders in your area. Names of lending institutions can be found in the yellow pages of the telephone directory under the heading of "Mortgages." or you can search for an FHA lender on HUD's website. Visit the FHA Resource Center for more information on all FHA programs.