FHA First Mortgage
Borrower must have owned property for 12 months AND if encumbered by a mortgage made payments for the last 12 months within the month due. Otherwise limited to 85% LTV. Standard 31/43 ratios, may be exceeded with compensating factor(s).
Formal forbearance plans are written agreements that can allow for reduced or suspended payments for up to six months. Informal forbearance is an oral agreement between the servicer and the borrower that allows for reduced or suspended payments for three months or less.
If you're currently in the market looking to buy a triplex or fourplex with FHA financing, you need to see if the property's rents pass the Self-Sufficiency Test. To be “self-sufficient” means that 75% of the property's rents need to cover the monthly payments.
This timeframe is defined by the Federal Housing administration (FHA), and it has set the standard that other lenders follow. It's also driven by Fannie Mae and Freddie Mac guidelines to qualify for a conventional loan. Employment gap lender rule of thumb: <Six months is okay. >Six months is an employment gap.
FHA Loan Down Payments
The minimum down payment you're required to make on an FHA loan is directly linked to your credit score. Your credit score is a number ranging from 300 – 850 that's used to indicate your creditworthiness. An FHA loan requires a minimum 3.5% down payment for credit scores of 580 and higher.
If you plan to purchase a flipped home with an FHA loan, you must abide by the FHA 90-day flipping rule. This rule states that a person selling a flipped home must own the home for more than 90 days before home buyers can purchase the property.
Down payments and gift funds
The minimum down payment required for an FHA loan is 3.5% if you have a credit score of 580 or higher. If you have a credit score from 500 to 579, you'll have to put down at least 10% of the purchase price.
Exceptions to the Rule: When You Can Have Multiple FHA Loans
The FHA recognizes that life circumstances can necessitate having more than one FHA loan. To be eligible for a second FHA loan, you must have at least 25% equity in your home or have paid down the FHA loan balance to 75% in certain circumstances.
FHA's self-sufficiency test requires that the rental income from a 3-4 unit covers the property's expenses, including the housing payment. This test ensures that the property generates enough rent to be a sound investment and that you can make the mortgage payments and other obligations.
If you have an FHA-insured mortgage, these options may be available to you. Informal or Formal Forbearance Plan: A Forbearance plan allows a borrower to work with their mortgage servicer to temporarily pause or reduce their monthly mortgage payments and may provide specific terms for repayment.
Mortgage forbearance is an option that allows borrowers to pause or lower their mortgage payments while dealing with a short-term crisis, such as a job loss, illness or other financial setback. This can help protect struggling borrowers from becoming delinquent with payments, as well as avoid foreclosure.
A mortgage deferment is an option for dealing with overdue mortgage payments. Also referred to as a partial claim, mortgage deferment involves taking the payments you missed and setting them aside to be paid at the end of your loan. The ending may be when you pay off your mortgage, refinance or sell the home.
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
FHA cash-out refinancing works by allowing homeowners to refinance their existing mortgage for more than they owe and then receiving the difference as a lump sum of cash. This option is ideal for those who have built a significant amount of equity in their home.
Furthermore, FHA loan rules in HUD 4000.1 say that the borrower must not have more than two 30-day late mortgage payments or installment loan payments in the last 24 months.
FHA Rule 75 states that 75% of the rental income must exceed the monthly mortgage for the property to be self-sufficient. This percentage must be at least enough to cover the mortgage payment, known as PITI (Principal, Interest, Taxes, and Insurance.)
While there's no limit to how many FHA mortgages you can get during your lifetime, you can generally only have one FHA loan at a time because you can only have one primary residence. This restriction helps keep the loan program – and its lenient requirements – from being used to purchase investment properties.
You may be denied for an FHA loan if you have declared bankruptcy but you have not had the bankruptcy discharged. You may be denied if you are delinquent on federal taxes or otherwise owe money to the federal government but without an approved payment plan.
The FHA flipping rule requires investors to hold properties for at least 90 days before selling to FHA buyers. This rule impacts property flipping plans by imposing additional scrutiny on sales within 91-180 days. Investors need to factor these timelines into their investment strategies.
In Los Angeles (California), it is 3 years 6 months because of high demand. In Chicago (Illinois), it is 2 years because of some accessible properties.
For Loans manually underwritten, closed-end debts do not have to be included in the qualifying ratio, if they will be paid off within 10 months from the date of closing and the cumulative payments of all such debts are Page 4 FHA Underwriting Guide FHA Underwriting Guide CORR Page 4 of 16 Published 04.01.2024 Updates ...