Pennsylvania FHA Loans
The Federal Housing Administration (FHA) has administered a loan program for homebuyers since 1934. A division of the U.S. Department of Housing and Urban Development, the FHA makes homebuying loans available to first-time buyers and other qualifying individuals. If you are a first-time homebuyer or concerned about credit score requirements, contact Dynamic Funding today to see if the FHA loan program is right for you.
FHA home loans are not that different from conventional mortgage loans. In fact, the Federal Housing Administration does not technically lend money. Rather, they provide mortgage insurance for a loan funded by an FHA-approved lender such as a bank or mortgage company. This guarantee by the federally-backed program greatly increases the borrowing ability for many first-time applicants. Once the FHA-approved loan is distributed, it is repaid to the lender through monthly mortgage payments.
Advantages of an FHA Loan
FHA-approved loans have numerous advantages and annually help over one million families buy a home. Some of the advantages of FHA-approved loans include:
- More flexible credit qualifications. FHA loans have a minimum credit score requirement of 500 where the applicant has a 10% down payment and a minimum of 580 with a 3.5% down payment. This is considerably lower than most commercial lenders. Further, the FHA will consider factors outside of an applicant’s credit score.
- Higher allowable debt-to-income ratio. As opposed to conventional lenders, FHA loans allow for applicants to have a higher debt-to-income ratio.
- Reduced waiting periods. Applicants with past bankruptcies or foreclosures face longer waiting periods when applying for a conventional loan as opposed to an FHA loan.
- Lower down payments. FHA loans allow for down payments as low as 3.5%.
- Relaxed rules on gifting. The FHA loan programs allow for a third party to make the down payment. This third party can be a family member, friend, employer, or nonprofit organization.
- Non-occupant co-borrowers allowed. Under most conventional loans terms, co-borrows must be occupants of the property. This precludes, for example, a parent signing as a co-borrower. FHA programs allow for non-occupant co-borrowers where this is a familial relationship or other longstanding relationship between the borrowers.
- No early payoff penalty. Unlike many conventional mortgage loans, FHA-approved loans are prohibited from imposing early payoff or refinancing penalties.
- Financed closing-costs. Unlike with many conventional loans, closing costs can be rolled into an FHA loan through lender credits.
- Multi-unit homes allowed. FHA-approved loans are also available for the purchase of multi-family units where the borrower intends to reside in one of the units. This leaves the other units available for rental.
Disadvantages of an FHA Loan
- Upfront insurance. Generally, mortgage insurance is required when your down payment is less than d20% of the purchase price. While the FHA mortgage insurance allows applicants to qualify for a loan, it also comes with an upfront percentage cost.
- Primary residences only. While conventional loans are available for second homes, investment, or commercial properties, FHA-approved loans may only be used to purchase primary residences.
- FHA loan limits. The Department of Housing and Urban Development sets a maximum loan limit for every county in the United States. These limits are based on median home prices in the area and are reviewed annually.
- Less competitive. In competitive real estate markets, a seller may receive multiple offers for a single listing. Some sellers may find FHA applicants less attractive.
- Property standards. To qualify for an FHA loan, a property must meet certain minimum standards for safety, security, and soundness. Any deviation from these standards will be revealed in the required appraisal.