The Federal Housing Administration is the largest residential mortgage insurer in the world. The FHA insures mortgages for both single-family and multi-family homes, as long as mortgages are obtained from FHA-approved lenders. FHA loan guidelines, which are established by law, may be reviewed at a nearby HUD office, or by consulting the FHA website.
Mortgage insurance is required for many loans. Mortgage insurance protects lenders from losses, when borrowers default on a mortgage. Mortgage insurance is required for down payments of less than twenty percent of the cost of the home, and premiums start at one percent of the monthly mortgage payment.
Closing costs are determined by each local HUD office. These are costs which are deemed reasonable, and customary, to most lender transactions. Examples of closing cost line items include appraisal fees, title insurance, and fees for obtaining credit reports.
FHA places limits on a borrower’s debt-to-income ratio. Maximum allowed debt, which includes the mortgage payment, plus any other revolving accounts, is equal to 41 percent of the borrower’s income. The maximum allowed mortgage expense, as a percentage of total income, is 29 percent.
FHA lists specific credit guidelines. Borrowers must have two lines of credit, which are currently open, to establish credit history. Borrowers who have delinquencies on federal debts, or judgments, or who have accounts in collections, will be rendered ineligible. Borrowers who filed for foreclosure, or received a deed in lieu of foreclosure, within three years of application, may also be ineligible. Regarding bankruptcy, borrowers must be two years away from a Chapter 7, and one year away from a Chapter 13, to be considered for a loan.
Each state decides its own mortgage limits, and divides those limits by county. Limits, which are listed by the type of home, are printed on the local FHA website, or provided by local HUD offices. Borrowers who want more in-depth information should contact their nearest HUD office, or check the FHA website.
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