FHA Home Mortgage and Refinance Programs

Happy couple getting keys to new house from real estate agentThe Federal Housing Administration (FHA) is constantly adjusting its guidelines for first time home buyers and for FHA streamline refinance borrowers so as to maintain the integrity of the mortgage insurance pool.

Since FHA loans are some of the most popular government loans, the FHA does allow for non-occupying co-borrowers including parents, grandparents, aunts, uncles, brothers, sisters or any other direct family member who can strengthen the file. Co-borrowers can bring more income and/or a stronger credit profile to the file to help the borrower qualify for an FHA home loan.

The FHA loan is also a great alternative for first time home buyers who are looking to finance or owners who are looking to refinance a multi-family property. FHA guidelines state that all homes purchased using government mortgage insurance must be primary residences, and FHA continues to be the best option for the purchase of two family or three family properties. FHA guidelines allow up to 85% of the gross rental income to be used for mortgage qualification.

In 2013 the FHA made some changes to their first time home buyers and refinance programs. Please don’t hesitate to reach out to a Poli Mortgage loan professional to discuss pre-approval and qualification details for the latest FHA home financing options.


 

To be pre-approved for an FHA first time home buyer’s loan or an FHA traditional refinance loan, you will need the following documentation:

  • Primary borrower’s and co-borrower’s current income as well as a full two year employment and income history
  • Asset account statements including checking, savings and retirement accounts
  • Location of property to be purchased or refinanced
  • Property type – single family or multi-family
  • Primary borrower’s and co-borrower’s social security numbers and dates of birth for credit report

The documentation required for an FHA streamline refinance loan includes:

  • Original mortgage note
  • Payoff statement from current lender
  • FHA case number pulled by Poli
  • 6 full payment cycles since first payment due date
  • 210 Days since original closing date
  • 2 months bank statements (if funds are needed for closing)

Changes from previous years are minimal and FHA continues to be your best mortgage loan option for purchasing a home with less than a 5% down payment:

  • FHA down payment requirements for 2013 are unchanged and remain at 3.5% of the purchase price
  • Annual FHA premiums for all purchase transactions with a loan to value of 95% or higher (i.e. less than 5% down payment) will be increased to 1.25% annually
  • The up-front mortgage insurance payment (UFMIP) will be 1.75% of the loan amount, but it can be financed in addition to the 96.5% loan amount.
The traditional refinance into an FHA insured mortgage is largely unchanged for 2013. This type of refinance is also commonly referred to as a “Credit Qualifying Refinance”.A borrower can utilize a credit qualifying refinance to get into a FHA mortgage from a conventional mortgage or choose to move from one FHA loan to a new FHA loan.The Annual Premium will be 1.25% of the loan amount for all loans traditionally underwritten and originated after May 31, 2009.

In 2013 there was very good news for the Streamline Refinance of loans originated prior to May 31, 2009.If your mortgage had been “endorsed” or insured by FHA prior to May 31, 2009, you will receive a break on your annual mortgage insurance premium. The new annual premium will be reduced to .55% of the loan amount which should produce a significant savings in mortgage insurance payments.Additionally, the new UFMIP for all streamline refinances will be .01% instead of the previous 1.00%.

2013 Changes – FHA Loan Sizes.

Overall FHA loan limits remain unchanged for 2013. Loan limits are set on a county-by-county basis.

As part of your first home buying process, be sure to check with a Poli Mortgage loan professional to ensure your anticipated home purchase will qualify for FHA financing.

FHA mortgage requirements are based on the borrowers’ ability to repay the mortgage and not on the borrower(s) having a perfect credit history. FHA loans are available from HUD to borrowers who can afford their mortgage payments but who don’t have pristine credit scores, a very large portion of the population.

The FHA 203-k Rehab Mortgage Program.

In the past, buying a home and then fixing it up, typically required a down payment and a reserve amount of cash after closing to do the renovations. Today, a borrower can use the FHA 203-k Rehab Loan to buy property or refinance an existing mortgage, and obtain funds for renovations in the same transaction. We call it our Poli Mortgage Group’s “Repair and Restore Home Loan”.

A rehab loan enables a borrower to obtain enough money to buy the home or refinance the mortgage and provides the additional funds to make renovations.

A rehab loan is a great way to build equity in a home quickly. An appraisal is completed before and after the work to indicate the value “as is” and “as completed”. Once the work is completed, you may have instant equity, and you may even be able to take additional cash out of the equity after the required seasoning period. The process works in three easy phases:

  1. At closing, the seller or previous lender receives all monies due. A predetermined “set aside” amount is placed into escrow from which the borrower can draw to pay each contractor when the work is completed.
  2. Upon completion of each stage, an inspector visits the property to verify completion of the work, and to authorize the release of money from escrow to pay that contractor.
  3. Your contractor will be able to be paid up-front for materials and a small portion of the labor. The balance of the contractor’s fee is then held until the release is authorized by the inspector. This protects you from the risk of unfinished work.

The renovation funds can be used for virtually any home improvement cost, but it is important to note you are required to hire professionally licensed, third party contractors to handle all the bidding and work. Each contractor must be on our “approved contractor list” or be eligible to qualify. The program does not allow you to be your own contractor.

Rehab loan limits are set by the FHA for each county, and your down payment for a purchase and renovation loan is generally calculated at 3.5% of the total loan amount (including closing costs). All of our FHA programs carry a 30 year fixed interest rate and the rates for a rehab loan are very similar to a traditional FHA mortgage with a very small add-on rate to cover the added risk.

The FHA does allow for a streamline rehab refinance as well, which is a simple refinance transaction that does not require re-verification of your information, and utilizes market interest rates with little or no closing costs.

To qualify for a rehab loan, the FHA requires your property be “Owner Occupied”, although both single family and multi-family (2-4 family) residences are eligible. For combined purchase and renovation loans, the entire transaction will close at once (aka “One Time Close”), meaning you will not be required to re-close during the loan draw period or after the work is completed.

Poli Mortgage Group offers rehab mortgage loans in all the states we serve and have a team who is standing by and ready to guide you through the process from application to loan completion. Call us direct at 866-353-7654 to speak to a loan professional or complete our online contact form.