FHA HOME LOANS IN ARIZONA
ABOUT FHA
In 1937, under an act of Congress, the Federal Housing Administration was established to provide American families with a unique opportunity to become home owners. Formerly, a home buyer's options were only limited to short term loans ranging from 1 to 5 years in term. Borrowers had to put as much as 40 to 50 percent down on the property and pay off the entire loan balance by the end of the term. FHA revolutionized the mortgage industry at the time by offering the 30 year mortgage and made the possibility of home ownership available to Americans nationwide. Throughout the years, a variety of programs have spawned from this revolution to make home ownership easier, more affordable, and attainable to Americans.
FHA, also known as the Federal Housing Administration, operates under the control of the Department of Housing and Urban Development (HUD) and has the primary responsibility for administering the government home loan insurance program. This program allows buyers who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA.
The most popular FHA home loan program nationwide is the 203(b) FHA home loan that only requires a minimum of 3.5% from the borrower and permits 100% of their money needed to close to be a gift from a relative, non-profit organization, or government agency.
The main advantage to a FHA home loan is that the credit criteria for a borrower are not as strict as FNMA or FHLMC. Someone who may have had a few credit problems should not have a problem obtaining FHA financing. Also, FHA home loans are assumable, allowing a person to take over the mortgage without the additional cost of obtaining a new loan. In addition, the seller can pay for up to 6% of the selling price towards the borrowers closing costs. 100% of the down payment and closing costs can be gifted.
The greatest disadvantage of FHA home loans is the upfront and monthly mortgage insurance premium (MIP). The amount of the premium depends on amount of down payment and term of the loan (see below for specifics). In addition, FHA limits the amount a borrower can borrower.
FHA HOME BUYING:
Home Buyer Wish List and Checklist
Finding the right Real Estate Agent
FHA Credit Qualifying Guidelines
FHA Income Qualifying Guidelines
Applying for an FHA home loan is easier than ever for Arizona home buyers. FHA has simplified the home buying process and streamlined the approval process by combining the latest technology and simplifying the qualifying guidelines, virtually anyone truly wanting to own a home can do so with an FHA home loan.
Though HUD and FHA do not actually take the loan applications, you can still apply online, over the phone or in person with Sun Nations Mortgage.
- To apply online, visit our APPLY NOW
- To apply over the phone, call us at (602) 993-0000.
- To apply in person, visit our offices at 15849 N. 71st Street, in Scottsdale to start the application process. Please call to schedule an appointment.
The actual application is relatively easy to take. You will be required to provide information about your income, credit history, assets and current debts. This information, as described in the FHA underwriting section, is required by HUD and FHA to determine if a borrower meets minimum HUD/FHA guidelines.
If you have questions about FHA home loans or how to apply for an FHA loan, call us at 602 993-0000.
15, 20 and 30 YEAR FIXED RATE MORTGAGE
FHA 3/1 ADJUSTABLE RATE MORTGAGE
FHA 5/1 ADJUSTABLE RATE MORTGAGE
30 YEAR FIXED USDA PROGRAM
Good Neighbor Next Door Program
203K
Energy Efficient Mortgages
Refinance (Stremline, Rate/term, cash out)
Home Buyer Wishlist and Checklist
Whether buying your first home or your third, being prepared before buying a house is crucial to the home buying process. The Department of Housing and Urban Development has created a "wish list" to assist you when beginning the home buying process. It will help you to narrow down what is really important to you and can assist your real estate agent in finding the right home. Click on the form:
The next form is the Home Buyer Checklist. Print a few of these forms before you go out and look at houses. It will assist you comparing the features of each home because once you look at a few houses they start to run together! Click on the form:
Finding the right Real Estate Agent
Before beginning the home buying process in Arizona, you must remember that as a potential home buyer you are the one in charge--not the real estate agent, not the lender, or the lawyer. More often than not, too many home buyers feel trapped due to a lack of knowledge of the process and rely on the judgment of others without knowing all of the facts and processes involved in home buying. This is especially true when selecting a real estate agent that will walk you through one of the most important transaction of your life.
Savvy customers know that they have a right to interview agents to see how they will find and negotiate the sale of a home for them. With the variety of services that agents offer and the varying levels of education that agents can go through, the selection of agents can be immeasurable.
As a buyer, it is important to first seek out the services of a buyers agent. This type of agent varies from other agents in the sense that they represent you in the real estate process, not the seller. Often times, a buyer will call the agent listed on a for sale sign outside a property only to find out that when it comes time to negotiating your interests, that agent represents the seller. Find out whom the agent represents. Even though most states require the agent to disclose this fact to the buyer. Be on the look out for agents that practice a form of buyer's representation called "dual agency". Dual agency is when the real estate agent represents both the buyer and the seller and forces the agent to be neutral throughout the negotiating process. Having someone looking out for your interests and offering their expert opinion about price and the condition of a home are invaluable.
A buyer's agent is contracted by you to represent your interest in the real estate process and has a fiduciary responsibility to do so from the beginning of the home shopping process until the close of escrow. Most buyer's agents do not charge the buyer fees for their services. This is because their commission comes from the seller who has already agreed to pay the buyers agent anywhere from a flat fee up to 4% of the sales price. It is one of those strange but true paradoxes of real estate.
Finally, remember that the decision is yours to make. Only you will have to live with that decision because once you have closed upon the home, you will have to live in it and only you will have to make the payments.
The maximum loan amount on an FHA loan varies by County in Arizona and also if the property is a 1,2,3 or 4 family dwelling.
| COUNTY | 1 FAMILY | 2 FAMILY | 3 FAMILY | 4 FAMILY |
| APACHE |
$281,250 |
$360,050 | $435,200 | $540,850 |
| COCHISE | $271,050 | $347,000 | $419,425 | $521,250 |
| COCNINO | $450,000 | $576,050 | $696,350 | $865,400 |
| GILA | $325,000 | $416,050 | $502,900 | $625,000 |
| GRAHAM | $271,050 | $347,000 | $419,425 | $521,250 |
| GREENLEE | $271,050 | $347,000 | $419,250 | $521,250 |
| LA PAZ | $271,050 | $347,000 | $419,250 | $521,250 |
| MARICOPA | $346,250 | $443,250 | $535,800 | $665,850 |
| MOHAVE | $322,500 | $412,850 | $499,050 | $620,200 |
| NAVAJO | $308,750 | $395,250 | $477,750 | $593,750 |
| PIMA | $316,250 | $404,850 | $489,350 | $608,150 |
| PINAL | $346,250 | $443,250 | $535,800 | $665,850 |
| SANTA CRUZ | $271,050 | $347,000 | $419,250 | $521,250 |
| YAVAPAI | $390,000 | $499,250 | $603,500 | $750,000 |
| YUMA | $271,050 | $347,000 | $419,250 | $521,250 |
If you have questions regarding these limits - Please call 602 993-0000 or email sunnations@cox.net
Property Types
Eligible Property Types: Single Family Residence, 1-4 units, HUD Approved Condos (Must be 51% owner occupied),PUDs Attached and detached
Ineligible Property Types: Condos without HUD Approval, Manufactured Homes, Mobile Homes, Condotels, Mixed Use, Leased Land and log homes
3-4 Unit Properties: No gifts allowed, 3 months PITI in reserves, Appraisal review required, the property must be self sufficient (the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly rental income, does not exceed 100%)
Properties with unpermitted additions: Are allowed and must meet HUD requirements
Eligible Borrowers
U.S. Citizens, Permanent and non permanent resident aliens, Non occupying co borrowers, a maximum of four borrowers per loan are allowed.
Resident Aliens: Permanant resident aliens are allowed but must show valid social security number. Non permanant resident aliens are allowed but must show valid social security number and proof that they are eligible to work.
Non Occupying Co Borrowers: They are allowed when the following can be met: Purchase and rate/term only, Must be on the note, All debts of the co borrower must be included, must be a blood relative, no qualifying ratio requirements for the owner occupant, for a 2-4 unit dwelling the maximum loan to value is 75%, if there is a non occupying co borrower.
Down Payment Requirements: Required minimum down payment is 3.5% of the selling price of the home.
The down payment can come from a gift from:
- relatives of the borrower
- An Employer or labor union
- Charitable Organizations
- Government Agencies
- A close friend with a clearly defined interest
A Gift letter is required and must include the following:
- Name, address and phone number of both the borrower and donor
- Dollar amount of the gift
- Relationship between the borrower and the donor
- Specification that no re payment is required
- Signatures of both the borrower and the donor
Evidence that the gift came from the donors personal account showing the capacity to give the gift and evidence of transfer of funds and has been deposited into borrowers account.
HUD requires a borrower to demonstrate a good to excellent repayment history of all debts. This history serves as the most useful guide in determining a borrower's willingness to repay credit obligations and serves as a model in predicting his/her future actions.
A borrower who has made payments on previous or current credit obligations (such as a credit card, student loan, etc.) in a timely manner represent a reduced risk to HUD. Conversely, if the credit history, despite sufficient income to support these debts, continuously reflects slow or often late payments, judgments and delinquent credit accounts, strong offsetting factors will be necessary to approve the loan.
When analyzing a borrower's credit report, it is important to focus upon the general pattern of credit behavior rather than isolated occurrences of late payments. Often times, people will experience a period of financial difficulty in the past and does not necessarily translate into an unacceptable risk. Reasonable explanations of the credit derogatory and evidence of offsetting factors (such as a new job or promotion with greater stability and pay, for example) will be necessary. All derogatory credit information must be explained, in writing, by the borrower.
The following is a brief synopsis of the credit underwriting guidelines for FHA home loans:
· Lack of credit history: If a borrower does not have a minimum of 3 trade lines with a 12 month history on their credit report, alternative forms of credit may be used. This would include items such as auto insurance payment history, utility bills, etc.
· Included credit obligations: Any installment loan (e.g. student loans, car loans, etc.) with less than 10 months remaining does not need to be included when qualifying for a FHA home loan. However, consideration is given to a large debt of over $100 a month, regardless of the number of months remaining. Furthermore, payments on auto leases with less than 10 months must be included in the qualifying ratios. The minimum payment on all revolving accounts (i.e. credit cards) is also factored in. If the borrower has an open revolving account without a balance, $10 per open account should be included when qualifying. Any loan where the borrower has co-signed for another party is included with their debts unless the borrower can prove that the the other party has made the payments on their own for a minimum of 12 months.
· Chapter 7 Bankruptcy: FHA requires a minimum of 2 years since the discharge of the bankruptcy. An explanation of the bankruptcy will be required. Furthermore, the borrower should have re-established credit (i.e. secured credit card) with no late payments.
· Chapter 13 Bankruptcy: FHA will consider a borrower still paying on a Chapter 13 bankruptcy if the payments to the court have been made for a minimum of 1 year in a satisfactory manner (as verified with the courts) and with the approval of the court trustee.
· Federal Debts: A borrower is not eligible for a FHA loan if he/she is delinquent or in default on any federal debt (such as a HUD or VA mortgage, student loans, SBA loans or a tax lien against his/her property). Borrowers can become eligible by bringing any delinquent accounts current, making satisfactory repayment arrangements with the creditor (generally a 3 month history will be required), or paying the account in full.
· Judgments: Judgments must be paid in full prior to closing.
· Collection Accounts: If a collection account is minor in nature ($100 or less), it generally does not have to be paid off as a condition of loan approval. This may vary from region to region.
· Foreclosure: A borrower who has had a property foreclosed upon, or who has given a deed-in-lieu of foreclosure within the previous 3 years, is generally not eligible for a FHA home loan. However, if it was the result of extenuating circumstances beyond the borrower's control (such as the death of a spouse, loss of employment, or serious long-term illness, etc.) and the borrower has since re-established good credit, an exception may be granted. However, extenuating circumstances do not include the inability to sell a house when transferring from one area to another.
· Non-purchasing Spouse: If a married borrower is purchasing a property by himself/herself, the credit obligations of the spouse must be included with the application and will be factored in with the borrower's credit obligations and used to determine the financial capacity of the borrower. Furthermore, the non-purchasing spouse may be required to sign a security instrument or documentation relinquishing all rights to the property.
FHA Income Qualifying Guidelines
HUD requires a borrower to have sufficient and adequate income to cover the repayment of the mortgage. Before a borrower can be approved for a FHA home loan, the stability of income and the continuance of the borrower's income must be established through acceptable sources of income, the borrower's past employment record, and the employer's confirmation of continued employment must be established.
Stability of a person's income is generally derived from their employment history. HUD requires verification for the previous two full years and must be documented through lender verifications of previous employment or W-2's. This income must be analyzed to determine whether it can be expected to continue through the first 3 years of the mortgage loan (if the borrower intends to retire during this period, the expected retirement income, social security benefits, etc. should be used). Any gaps in employment must be reasonably explained by the borrower. Schooling or education for the borrower's profession (e.g. nursing school) can be counted towards the 2 year requirement. Allowances for seasonal employment, such as is typical in the building trades for example, may be used.
The following is a break down of the different types of income HUD considers acceptable:
· Salary / W-2 Income
· Overtime or Bonus Income: Both may be used to qualify the borrower as long as the income has been received for the past two years and is likely to continue. An average of the bonus or overtime income over the last 2 years is used
· Part-time Income: Part-time income (second job) may be used in qualifying if the borrower has a 2 year employment history without interruption. Seasonal employment may be used if the borrower can demonstrate a 2 year history and the probability of continuation. Income from part-time positions that does not meet these requirements should be considered as a compensating factor only
· Commission Income: Commission income must be averaged over the previous 2 years. The borrower must provide his/her last 2 years Federal tax returns (1040's) with all schedules. Any un-reimbursed business expenses must be subtracted from the gross income.
· Retirement / Social Security Income: Verification from the source is required. If the income should expire within 3 years, the income cannot be used to qualify the borrower and used only as a compensating factor
· Alimony, Child Support, or Separate Maintenance: Though not required for qualification, a borrower who chooses to use this income must 1) provide a 12 month payment history from the ex-spouse or courts showing timely payment and 2) provide evidence that such payment will continue for at least 3 years. A copy of the divorce decree, settlement agreement, etc. will be necessary.
· Notes Receivable: A copy of the note and evidence that payments have been received for a minimum of 12 months are required. Should the note expire within 3 years, it can be used as a compensating factor only.
· Interest and Dividends: Interest and dividend income may be used provided documentation (such as tax returns or account statements) supports a 2 year history of receipt. This does not include dividend re-investment plans.
· Rental Income: Rent received from investment properties owned by the borrower may be used, subject to the proper documentation. Income from roommates, etc., in a single-family property to be occupied as the borrower's primary residence is not acceptable. Rental income is calculated from the borrower's Schedule E of their 1040's. Depreciation can be added back to the borrower's net rental income. Positive rental income is considered as gross income for qualifying purposes; negative rental income must be treated as a recurring liability. Copies of the leases must support a continuation of the income.
· Self-Employed: A borrower with 25% or more ownership interest in a business is considered self-employed. The income from borrower's self-employed less than one year is not acceptable. Borrower must supply the following: 1) personal tax returns for the most recent 2 years (with all schedules), 2) K-1's, 1120's or 1120S's for the last 2 years, financial statements (profit and loss statement and a balance sheet) for the interim and last 2 years, 3) borrower will have to sign an 8821 or 4506 income taxes release form (see lender).
Compensating Factors for an FHA Loan
When a borrower's payment or combined monthly debt payments is/are higher than the limits prescribe by HUD, the loan may be approved with compensating factors. The following are several compensating factors to support borderline loan files:
· Energy efficient dwelling
· Less than 10% increase from old rent/house payment to the new housing expense
· A borrower's excellent savings ability (as shown by savings accounts, IRA's, etc.)
· 3 or months cash reserves (house payments after closing) that are not part of a gift
· Limited use of credit
· Borrower has potential for increased earnings
· Borrower has income that cannot be used as qualifying income
· Larger than minimum down payment
Good credit, steady income and residual income are not compensating factors
The borrower's cash investment in the property must equal the difference between the amount of the FHA mortgage, excluding any upfront MIP, and the total cost to acquire the property (to include prepaid expenses, closing costs, etc.) All funds must be verified from acceptable sources.
Acceptable sources of these funds include:
· Earnest Money Deposit: If the amount of the earnest money deposit exceeds 2% of the sales price or appears excessive based on the borrower's history of accumulating savings, the deposit amount and source of funds must be verified. Otherwise, satisfactory documentation includes a copy of the borrower's canceled check or verification from the bank.
· Savings and Checking Accounts: The lender must verify these accounts. The borrower will need to provide the last three most recent bank statements. If a large increase in deposits is present or the account was recently opened, an explanation and verification of the source of the deposit must be established. Non-sufficient funds, bounced checks, or account overdrafts will need to be reasonably explained.
· Gift Funds: An outright gift is acceptable if it is from: 1) a relative of the borrower, 2) the borrower's employer or labor union, 3) a charitable organization, or 4) a governmental agency or public entity that has a program established to provide homeownership assistance to low and moderate income families. No repayment of the gift may be expected or implied. Furthermore, a gift letter signed by both the donor and the borrower stating the amount of the gift and that repayment is not required, provides the donor's name, address, phone number, and relationship to the borrower will be required. In addition, verification of the transfer of funds from the donor's account to the borrower's account, via copies of the donor's canceled check, for example, and the borrower's deposit slip or bank statement will be necessary.
· Sales Proceeds: Sale of an asset is considered an acceptable source of income if the borrower provides: 1) copy of the bill of sale or HUD-1 Settlement Statement (for the sale of a home), 2) copy of the check or verification of funds transfer from the buyer of the asset to the borrower, and 3) copy of the borrower's deposit slip or bank statement showing the deposit of the funds into the borrower's bank account.
· Cash Saved at Home (i.e. Mattress Money): Cash must first be deposited in a financial institution or held by the escrow/closing agent. The borrower must provide an explanation of how the funds were accumulated and the length of time taken to do so. The lender must determine the credibility of the savings based on the borrower's income, spending habits, and history of using financial institutions, as well as considering how long it took to accumulate the funds.
· Rent Credit: If the portion of a borrower's current rental payment is to be used to purchase the property the borrower currently occupies, the borrower will need to provide a copy of the rental/lease agreement showing an option to purchase with the clause stating how much of the rental payment is to be used as a rent credit. It is the lender's responsibility to show that the rent payment is above FHA's estimate of fair market rent. If the rent paid by the borrower is less than fair market, or if the seller has agreed to permit the borrower to occupy the property rent-free, this amount must be deducted from the sales price as a sales concession before determining the borrower's maximum insurable FHA loan amount
Depending on your situation, you will be asked for documentation to support your income, liabilities, and funds to close. This documentation will establish your credibility as a borrower, your ability to repay the FHA home loan and your willingness to repay the loan.
The following is a list of documents that will be required by the lender to process your FHA mortgage as required by HUD:
· One full month's worth of paystubs
· Last 2 years W-2's (salaried income) and / or last 2 years tax returns with all schedules (commission, dividend, rental income or self-employed borrowers)
· Copies of social security, pension, and/or retirement award letters (if applicable)
· Last two months bank statement for all accounts
· Current statements for all investment accounts
· Documentation to support funds to close
· Explanation for any credit derogatories
· Bankruptcy and discharge paperwork (if applicable)
· Divorce decree and any settlement paperwork (if applicable)
Similar to conventional home loans, FHA insured mortgages require mortgage insurance. The mortgage insurance, referred to as mutual mortgage insurance (MMI), charges 0.9% per year of the loan amount. In addition to the mutual mortgage insurance that is charged to the home owner each month, FHA charges an upfront mortgage insurance premium (MIP) of 1% of the loan amount for 30 year fixed rate mortgages. It is important to note that any unused portion of the upfront MIP may be refunded within the first 84 months of the loan.
The monthly mortgage insurance payment will automatically be cancelled when the outstanding principal balance reaches 78% of the original purchase price (provided that the monthly mortgage insurance payments have been made for a minimum of 5 years for 30 year loans).
The following is a table of the upfront MIP and monthly mortgage insurance percentages for FHA home loans:
| LOAN TERMS > 15 YEARS | ||
| LTV | <=95% | >95% |
| Purchase or Refi | 1.00% / 1.10% | 1.00% / 1.15% |
| LOAN TERMS <= 15 YEARS | ||
| LTV | <=90% | >90% |
| Purchase or Refi | 1.00% / .25% | 1.00% / .50% |
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