Federal Housing Administration loans or commonly known as the FHA loans are those that are sponsored and guaranteed by the government but not funded by such, which means to say that there is still a bank or a lending company that financially provides and services the loans, where FHA’s role is to basically back them up in case the bank fails to do so. More so, they provide insurance and confidence to the lenders in taking riskier and bigger credits that the conforming leaders could not provide. If in the event one defaults with the loan, the lending institution receives the amount on default from the government, through the insurance premiums the customers pay for the FHA mortgage.
However, these (FHA) loans are not the same for everyone as they may vary depending on the state, county, and individual, given the circumstances. Each area has its own maximum set while individual benchmarks determine how much you receive. Also, FHA loans provide better avenues for people to obtain them since it possesses fewer constraints, while at the same time allowing lenders their own overlays, which are another set of restrictions in order to protect their own interest in the business arena.
FHA LOAN BY LIMITS AREA
Every area of the county has a standard loan size limits that are further broken down by the county to city level (if there is), depending on the median home price in a given area. The home prices are then gauged against the national conforming loan limit through the sum of the cost spent by homes in the area.
The national conforming loan limit is four hundred and seventeen thousand US Dollars ($417,000) which becomes the determining factor as to whether the loan limit in an area is to be changed – if the home price is significantly above or below such. These days, the lowest loan limit recorded is two hundred seventy-one thousand and fifty US Dollars ($271,050) which represents the difference of sixty-five percent (65%) of the standard while the peak is at six hundred twenty-five thousand and five hundred US Dollars ($625,500) consecutively representing the one hundred and fifty percent (150%) of the household above the standard loan amount.
As an example, every county in Alabama regardless of the county for a single family home is entitled to a maximum loan of two hundred seventy-one thousand and fifty US Dollars ($271,050) while a duplex’s maximum loan is three hundred and forty-seven thousand US Dollars ($347,000), a triplex’s worth four hundred nineteen thousand, four hundred and twenty-five US Dollars ($419,425), and a quadruplexes is five hundred twenty-one thousand, two hundred and fifty US Dollars ($521,250). Same goes in Arizona with an exception for Coconino County where a single family home has a maximum loan equivalent to three hundred sixty-two thousand, two hundred and fifty US Dollars ($362,250). In some parts of California, however, the loan limits has extreme differences from county to county. In Alameda County, a maximum loan of six hundred and twenty-five thousand and five hundred US Dollars is allowed in a single family home with Butte County may only be worth two hundred ninety-three thousand, two hundred and fifty US Dollars ($293,250).
It only shows that every part of the world differs to ensure that there is a balance between the appropriate amounts of financing available for the economy in providing funding, including for those that would otherwise be unable to acquire compatible financing.
LOAN SIZES DEPEND ON CREDIT, INCOME, AND DEBT
In qualifying for a loan, it is not only the limits of the area the household is located that is determined since it only provides the maximum loan one could possibly apply for if he/she decides to acquire a loan through FHA financing – thus, it does not guarantee that one could loan such amount right away.
Several factors include:
* Credit history
* Credit score
* Employment history
* Current debts
* The price of the home one is planning to purchase
The aforementioned factors or the individual’s entire loan profile are used by lending institutions in deciding what they deem a client is qualified for and can afford comfortably without having grave financial dilemmas after the transaction.
Also, every lender has their own requirements separate from that of what the FHA has listed that every debtor must abide by.
Not everyone would deem it important but it actually is more than those thought it would be. Credit scores together with a credit history have its own significance and power, especially when paired with an FHA loan limits that apply to the loan candidate. If a credit history looks bad and does not qualify for another criterion, one would still not be eligible to acquire the maximum loan limit in one’s county – even with counties which have the highest of six hundred and twenty-five thousand, five hundred US Dollars ($625,500).
In terms of credit score, FHA commonly required it to be over five hundred and eighty (580) to be considered for a loan application. However, having a score of such would still not be a guarantee that one may be allowed for such credit since there are still other qualifications for such and some lenders would prefer a score typically around six hundred and forty (640). According to the FDA, one may still be eligible even if his/her score is five hundred and eighty (580), depending on the banks willingness to fund the loan, and adjustments on other aspects such that of a higher down payment. Rather than just the three and a half percent (3.5%) for the ones with a higher score, it would shoot up to a whopping ten percent (10%) as a compromise with the low credit score.
History, and how a lender qualifies for a loan amount are also key players in the many factors regarding one’s credit score. What lenders are actually looking for are adequate credit lines coupled with payments made on time, and responsible use of remaining credit which means that credit lines did not go beyond the limit and are not maxed out. Or basically, just responsible handling of one’s available credit.
However, it doesn’t mean that lenders are looking for the perfect debtors, and they would still be extending their services through their alternate forms of credit in verifying one’s worthiness. Also, if one’s history in their credit lines go beyond or are simply debauched in their picture in the credit history (frequent late payments, bankruptcies, foreclosures, or collections), the FHA lender would still try by looking at every case individually and on different angles to see which way is best to take in proceeding.
After all the extensions and bindings in good graces, there is one aspect that is simply non-negotiable – the FEDERAL COLLECTION. Any outstanding federal debts that are left the untaken care of before applying for the load will not be qualified for an FHA loan.
After overseeing the FHA limits that apply to an individual, the lenders then consider one’s income for the past two (2) years.
A fluctuating income due to several factors such as commissions, bonuses, a change in employment, etc., an average of the last two (2) years would still be taken. In such cases, the lender usually proceeds to check on one’s full tax return together with the pay stubs which are usually the documents required in applying for an FHA loan.
In the event that an individual is self-employed or is on a commission-based income, the expenses would then count as income – which could decrease the amount of loan one is eligible to receive.
In other special circumstances for the income, such as fluctuations and seasonal employments, an underwriter would then be a necessity. Basically, FHA loans require a straight forward income that can be verified and is received on a regular basis in order to avoid providing a debtor with a hazardous loan.
In terms of compensating factors that could recompense for the odd income, such as a high credit score or a low credit ratio, the varying income can be overlooked.
Basically, the lender looks at the overall picture in determining the risks their business is willing to take in providing potential consumers with FHA financing.
THE ROLE OF DEBT RATIO
Another key player in determining how much you can get for an approved FHA loan is the debt-to-income ratio. Aside from the credit score and history, the debt ratio takes the second place in the rank of importance in applying for an FHA loan.
On the ordinary picture, lenders try to balance and keep a borrower’s debt ratios at thirty-one percent (31%) on the front end, and forty-three percent (43%) on the back end. It is generally how the loan amount one is eligible to receive is figured. Which means to say that even if one is a resident of a county where the maximum loan amount is three hundred thousand US Dollars ($300,000), but the mortgage payment combined with the taxes and insurance for the home would make the front end debt ratio higher than thirty-one percent (31%), one will still not be eligible for a maximum loan size. Thus, the lender would try to figure out a mortgage payment that will keep the front and back end ratio, which equates to the mortgage payment plus any other monthly obligations, under forty-three percent (43%), and such amount would still differ for everyone as it depends on the interest rate being charged, the amount of taxes of the home to be purchased, as well as the cost of the homeowner’s insurance.
The lender’s goal is basically to keep the balance between the front and the back end through the given factors above.
THE TYPE OF PROPERTY
Another factor in the FHA loan limits is the type of property a borrower is purchasing since FHA are available on so many types such as single family homes, townhomes, planned unit developments (PUDs), condominium units, and could even extend to multi-unit properties. Whereas, the type of home one is purchasing becomes the determinant of the limits imposed upon such.
The types of property as classified by the FHA include:
* Single family housing (including condominium units, townhomes, and PUDs)
Each category has its own limits. For example: in Baker County, Georgia, the FHA limits are as follows:
* Single family home: $271,050
* Duplex: $347,000
* Triplex: $419,425
* Quadruplex: $521,550
In general, the more units included in the property, the higher the loan limit for the property itself becomes. If one is purchasing a multi-unit property, one would have to be living in one of the units to be eligible for the FHA financing.
»Click Here to get matched with a Lender»