written by: Trent Lorcher•edited by: Laurie Patsalides•updated: 9/27/2010
An FHA mortgage is a federally insured loan offered by FHA qualified lenders. These loans have historically allowed individuals to purchase homes who otherwise would not have been able to. An FHA insured mortgage requires a lower down payment and lower credit requirements.
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FHA Mortgage Guidelines: Minimum Down Payment and Lending Standards
The minimum down payment for an FHA loan has increased from 3% to 3.5% as of January 1, 2009. According to MSNMoney, it will remain at 3.5% through 2010 and most likely into 2011. The FHA minimum down payment, however, is still considerably less than the 5% required by non FHA loan programs. In order to get the best rate and avoid private mortgage insurance (PMI), 20% is recommended. The Housing and Economy Recovery Act of 2008 raised the minimum down payment for an FHA loan to emphasize the administration's philosophy that owning a home is a privilege and not a right.
Those looking to purchase a home with only 3.5% down and no other requirements need to look elsewhere. FHA mortgage guidelines apply common sense to make sure borrowers can afford to pay back the loan. Its goal of promoting home ownership to qualified borrowers, however, is still being fulfilled by insuring loans that accept a lower down payment and approving loans to those with less than perfect credit.
Because of the housing bubble and subsequent pop, lending restrictions have gotten stricter since 2007. Most lenders require at least a 730 FICO score and 20% down. Those unable to fulfill either or both requirements may still qualify for an FHA loan. Due to an increase in FHA mortgage delinquency, it is possible that FHA qualifications may get tougher.
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FHA Mortgage Information: Qualifying for an FHA Refinance
Borrowers must satisfy the following requirements to qualify for an FHA insured refinance:
The applicant must have owned the property as a principal residence for at least 12 months prior to completing the loan application.
The applicant must be current with mortgage payments and have had no late payments for at least one year.
The property being refinanced must be a 1 or 2 unit dwelling.
Non-occupant owners may not be added to the mortgage. Any co-borrower must be a resident.
All other existing liens or mortgages must be subordinate to the new FHA mortgage.
The mortgage being refinanced must already be FHA insured.
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FHA Mortgage Information: Cash Out Refinancing
In order to qualify for cash out refinancing, most lenders limit the loan to value ratio to 80%; that is, the amount of the loan must be no more than 80% of the value of the home. Homeowners, however, can still qualify for an FHA insured cash out refinancing with a loan to value ratio of up to 85%. Those seeking an FHA streamline refinance can go up to 95% LTV and it requires two appraisals. The second appraisal must be done by an FHA approved appraiser, paid for by the borrower and hired by the lender. If the second appraisal comes in more than 5% below the 1st, the maximum mortgage must be based on the lower appraised value.
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FHA Refinance for Under Water Borrowers
The housing bubble burst has led to a significant number of homeowners who owe significantly more than their home is worth. If you find yourself in this situation, there may be help. Following are guidelines for an FHA refinance of an under water mortgage:
The program is voluntary for lenders, meaning they don't have to do it even if you meet the criteria.
Borrowers must be current, must occupy the home as the current resident, and must be able to verify income.
Lenders, if they choose, can reduce the principal amount on the loan at least 10%.
The reduced principal will show up as a mark against your credit score.
The option is available even if your original loan is not an FHA insured loan.