As a Rhode Island real estate agent who has recently navigated both ends of FHA backed transactions, I can personally attest to the fact that FHA loans are making a strong comeback as a useful alternative for first-time home buyers and home buyers with less than perfect credit.  My experience as of late has enlightened me to the fact that both industry peeps and consumers alike are often still in the dark about the FHA process and what it means to a sale.  So, I'm here to offer an inside scoop.

Tips for Potentail FHA Borrowers:

1.) There are three FHA loan programs:

1. FHA 203(b) fixed-rate mortgage (15- or 30-year loans)
2. FHA 251 adjustable-rate mortgage
3. FHA 2-1 buy-down loans

2.) To qualify for an FHA mortgage, borrowers must:

  • Have a positive credit history spanning the last two years.
  • Show consistent or increasing income.
  • Have a steady employment record (two years or more with the same employer is perfect).
  • Have no bankruptcies in the last two years.
  • Keep the mortgage payment at approximately 30% of their gross income or less.

3.)  The FHA does not supply the loans, rather they insure them to protect the lenders. This program means less risk for lenders which creates low down payments for borrowers.

4.)   Not all lenders deal with FHA mortgage loans. Before applying for a mortgage loan, applicants should always check first to make sure that the lender actually processes FHA loans. The lender should also be FHA-approved.

4.)  The most popular FHA loan has a minimum cash investment requirement of 3.5% but permits 100% of the money needed at closing to be a gift from a relative, nonprofit organization or government agency.

5.)  Shop rates when looking for a FHA mortgage.  The rates are established by the lender, not the government, so they will vary.  FHA loan rates are typically higher than conventional (nongovernment guaranteed) loan rates but shouldn't be a lot higher unless you have credit problems.


Homeowners Considering FHA Backed Buyers:

1.)  There is LESS risk involved with FHA borrowers because the FHA guarantees the loan, so the lender doesn't take on a financial risk by extending credit. 

2.)  Agreeing to consider FHA backed buyers is a great way to generate additional interest and increase the pool of qualified buyers.

3.) Though all FHA mortgages require a home appraisal, they do not require a home inspection. 

  • The FHA now allows what are called "as is" appraisals. These appraisals allow for minor property defects from wear and tear, for example. They also help sellers to keep mandatory repair costs lower as well. Such defects include minor items like leaky faucets and even missing handrails.

4.)  If the buyer chooses to conduct a home inspection, and most will, the FHA-insured mortgage must meet one of the nationally recognized building codes. Any code violations/failures must be addressed and remedied to reach closing.

5.) Sellers with FHA-backed mortgages themselves who wish to sell their homes also have another option open to them, and that's loan assumption. In other words, you could allow a prospective buyer to assume your loan as long as the lender feels he's qualified.

Lastly, it is important for both homeowners and consumers to know there is a maximum borrowing limit for FHA backed loans.  Currently, the cap on a single family in Rhode Island is $475,000.00.

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