A Guide to the FHA Loan Program

The FHA loan program can help a borrower in many ways. The loan process can be overwhelming, but, taking things one step at a time, can simplify the process. The FHA loan program should be given careful consideration.

First Things First

There are several things you are going to need to do before you begin your research into the FHA loan program:

  • You need to know how much house you can afford.
  • Learn about various home buying programs that are available to you.
  • Shop for a lender.

The FHA Loan Program

The FHA is a US Government insured loan.  Banks offer more flexibility with the FHA loan.  Some of the features include equal access to loan for borrowers with less than perfect credit.  Also the debt to income ratios, the qualifying tools set forth for lenders.  Conventional loan programs offer a 36 debt to income ratio and FHA products offer a 41 standard guideline.  The ratio allows borrowers to purchase a little higher sales price. The down payment is usually lower than offered with conventional financing.

Financing Programs

When you apply for the FHA loan program, the FHA does not actually lend you money. They offer insurance, in case of default.  Your down-payment can be as little as 3% which means that a borrower can buy their new home with less out of pocket money.  Typically, conventional financing requires 5 to 10 percent down payment amounts.

For a purchase of a home in need of repair, the FHA offers their 203k loan.  With the 203k loan, a borrower can finance the mortgage plus the cost of the repairs into one loan. Th repairs to the home can be completed immediately upon purchase of the home, instead of having to wait until you come up with the money to do them.

The FHA loan program can also be used for the purchase of condominiums and manufactured homes.

When you apply for the FHA loan program, the process is identical to applying for a conventional loan.   The lender will request you complete an application and will ask for paystubs, bank statements and identification.  The lender will assess your qualification based on standards issued from HUD, Housing and Urban Development, which sets forth basic guideline requirements for the FHA loan.  

The lender will run your credit report and calculate your gross income.  Then, they will take the percentage established, 41 percent, to determine your maximum monthly payment amount.  Then, they will look at your savings and establish that you have sufficient funds in your account to close the transaction.  

Your lender will ask you for any supporting documentation that may be required along the way, be sure to provide them with the items as quickly as possible to have your process flow smoothly.