FHA Home Loans
FHA home loans offer both first time home buyer and experience home owners a low down payment option if they meet a few basic qualifications.
Let’s learn more about FHA home loans to see if it’s the right fit for you!
How to Qualify for FHA Loan in Denver
Have a debt-to-income ratio (DTI) of no more than 50%. This means that your total monthly debt payments can’t be more than 50% of your pretax income (includes debts that you aren’t actively paying).
Pay the upfront mortgage insurance premium (UFMIP). This is usually equal to 1.75% of the base loan amount.
Have bank statements for the last 30 days. You’ll also need to provide documentation for any deposits made during that time (usually pay stubs).
Must have a steady job history (if self-employed, have two years of successful self-employment history; this should be documented by a current year-to-date balance sheet, tax returns, and a profit and loss statement).
Must be at least two years out of bankruptcy, unless you can prove that the bankruptcy was due to circumstances beyond your control.
Must be at least three years removed from any foreclosures.
Have a valid social security number.
Have U.S. citizenship and be of legal age.
FHA approved lenders, like Someday Mortgage, use a program called Desktop Underwriter (DU) for mortgage approval. DU looks at the potential borrower’s debt ratio, reserves and credit score to make an automated credit decision. Lenders that we partner with can also add their own rules, also known as overlays on top of the minimum requirements for an FHA home loan listed above. As each lender sets their own rates and terms, comparison shopping is important in this market.
Mortgage Insurance Premiums
Borrowers in Denver who obtain an FHA home loan must pay FHA mortgage insurance which is designed to protect the lender from a loss if you default on the loan.
You’re required to pay two types of mortgage insurance premiums—an Upfront Mortgage Insurance Premium (UFMIP) and an Annual MIP (charged monthly). This is different from government-insured loans, where you have to pay private mortgage insurance (PMI).
As of 2020, the UFMIP is equal to 1.75% of the base loan amount for an FHA home loan. It can either be rolled into the loan or paid at the time of closing. As for Annual MIP, your monthly payments will range from 0.45% to 1.05% of the base loan amount, depending on factors such as length of the loan, the base amount, and the original loan-to-value ratio (LTV).
If you start with a down payment of less than 10%, you’ll continue to pay mortgage insurance for the duration of the loan. Those with 10% down payments will pay FHA mortgage insurance for 11 years.Types of FHA Loans
Traditional – used to finance primary residences.
Home Equity Conversion – (reverse mortgage) allows homeowners 62 years of age and older to exchange their home equity for cash while still retaining title to the home. Funds can either be withdrawn as a fixed monthly amount or as a line of credit.
203(k) Program – includes extra funds to pay for repairs and renovations to the Denver house. For this type of loan, the property may undergo two separate appraisals: an “as is” appraisal that evaluates its current state, and an “after improved” appraisal estimating the value after the work/renovations are finished.
Energy Efficient Program – includes extra funds to pay for energy-efficient home improvements (could potentially lower the cost of your utility bills).
Section 245(a) – a graduated payment mortgage (GPM) with reduced initial monthly payments that increase over time, and a growing equity mortgage (GEM) where fixed increases in monthly principal payments result in shorter loan terms. This program is for borrowers who anticipate an increase in income.
Advantages of FHA Loans
FHA home loans have many advantages for both first time home buyers and someone that has owned homes already. With increased home prices and interest rates, FHA loans offer borrowers a government backed loan option that can help minimize the cost at closing and other factors.
The DTI and credit score requirements are more relaxed than those of other loan types.
Lower down payments.
Increased allowance for closing cost financing.
Good for first-time homebuyers.
FAQs
What’s the difference between pre-qualified and pre-approved?
Pre-qualification for a FHA home loan is a determination of the loan amount you’re likely to receive. To obtain pre-qualification, you usually are interviewed by a licensed loan officer in Denver who determines the pre-qualification amount. On the other hand, to be pre-approved, you must submit an application and verify your credit and financial history. After you receive your pre-approval certificate, you’re in a stronger position to close earlier and negotiate a better price.
How long do FHA loans take to close?
The average FHA home loan approval process takes between 30 to 60 days.
If my credit score is low, how can I raise it?
Paying your bills on time, reducing your credit balances, and trying to not apply for credit too often are all ways that you can raise your FICO score.
How many active FHA home loans can I have at one time?
Without the exception of certain extenuating circumstances, borrowers will likely not be approved for additional FHA home loans while one is active. Special circumstances that could warrant a borrower having two or more active FHA loans include job relocations, changes in family size, and situations where a co-borrower vacates the property with an existing FHA home loan to purchase a home of their own.
A FHA loan may sound great, but it’s not for everybody. In the words of the Federal Housing Administration, an FHA home loan “won’t accommodate those who are shopping on the higher end of the price spectrum—nor is it intended to.”
This kind of mortgage was specifically designed for Colorado buyers with low-to-moderate incomes; that being said, if you have a larger budget and are looking into purchasing a house that’s a bit pricey, then a conventional loan might better suit your needs.
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