FHA Loans

Understanding FHA Loans:
FHA Loans, backed by the Federal Housing Administration, are designed to make homeownership more accessible. They often require a lower down payment and are more lenient with credit score requirements than conventional loans. These loans are insured by the FHA, which means lenders may offer them with more favorable terms, knowing the loan is backed by government assurance.

Who Benefits from an FHA Loan?

  1. 1. First-Time Homebuyers: With their more forgiving credit requirements and lower down payment options, FHA loans are particularly appealing to those entering the homeownership world for the first time.
  2. 2. Lower Credit Score Holders: For individuals who have faced financial challenges in the past leading to a lower credit score, an FHA loan offers a viable pathway to owning a home.
  3. 3. Limited Down Payment Savers: Those who haven't been able to save a large sum for a down payment can benefit from the FHA's lower down payment requirements, often as low as 3.5% of the home's purchase price.
  4. 4. Refinancers: Homeowners with existing FHA loans can often refinance with an FHA Streamline Refinance, which requires less documentation and underwriting compared to conventional refinancing options.

    5. At Brick Mortgage, we understand the diverse needs of homebuyers in Queen Creek and throughout Arizona. Our expertise in FHA loans and other mortgage options ensures that every potential homeowner finds a solution tailored to their unique situation. Let us be your compass in the vast landscape of real estate financing, guiding you to a place called home.

    This section elucidates the nature of FHA loans, emphasizing their inclusivity and flexibility, and identifying potential beneficiaries of this type of loan.


In 1934, the Federal Housing Administration (FHA) was established to improve housing standards and to provide an adequate home financing system with mortgage insurance. Now families that may have otherwise been excluded from the housing market could finally buy their dream home.

FHA does not make home loans, it insures a loan; should a homebuyer default, the lender is paid from the insurance fund.

  • Buy a house with as little as 3.5% down.
  • Ideal for the first-time homebuyers unable to make larger down payments.
  • The right mortgage solution for those who may not qualify for a conventional loan.
  • Down payment assistance programs can be added to a FHA Loan for additional down payment and/or closing cost savings.

Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate information on:

Employment

  • Complete Income Tax Returns for past 2-years
  • W-2 & 1099 Statements for past 2-years
  • Pay-Check Stubs for past 2-months
  • Self-Employed Income Tax Returns and YTD Profit & Loss Statements for past 3-years for self-employed borrowers

Savings

  • Complete bank statements for all accounts for past 3-months
  • Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.

Credit

  • Recent bills & statements indicating account numbers and minimum payments
  • Landlord's name, address, telephone number, or 12- months cancelled rent checks
  • Recent utility bills to supplement thin credit
  • Bankruptcy & Discharge Papers if applicable
  • 12-months cancelled checks written by someone you co-signed for to get a mortgage, car, or credit card, this indicates that you are not the one making the payments.

Personal

  • Drivers License
  • Social Security Card
  • Any Divorce, Palimony or Alimony or Child Support papers
  • Green Card or Work Permit if applicable
  • Any homeownership papers

Refinancing or Own Rental Property

  • Note & Deed from any Current Loan
  • Property Tax Bill
  • Hazard Homeowners Insurance Policy
  • A Payment Coupon for Current Mortgage
  • Rental Agreements for a Multi-Unit Property

The main difference between a FHA Loan and a Conventional Home Loan is that a FHA loan requires a lower down payment, and the credit qualifying criteria for a borrower is not as strict. This allows those without a credit history, or with minor credit problems to buy a home. FHA requires a reasonable explanation of any derogatory items, but will use common sense credit underwriting. Some borrowers, with extenuating circumstances surrounding bankruptcy discharged 3-years ago, can work around past credit problems. However, conventional financing relies heavily upon credit scoring, a rating given by a credit bureau such as Experian, Trans-Union or Equifax. If your score is below the minimum standard, you may not qualify.

Your monthly costs should not exceed 29% of your gross monthly income for a FHA Loan. Total housing costs often lumped together are referred to as PITI.

P = Principal

I = Interest

T = Taxes

I = Insurance

Examples:

Monthly Income x .29 = Maximum PITI
$3,000 x .29 = $870 Maximum PITI

Your total monthly costs, or debt to income (DTI) adding PITI and long-term debt like car loans or credit cards, should not exceed 41% of your gross monthly income.

Monthly Income x .41 = Maximum Total Monthly Costs
$3,000 x .41 = $1230
$1,230 total - $870 PITI = $360 Allowed for Monthly Long Term Debt

FHA Loan ratios are more lenient than a typical conventional loan.

Yes, generally a bankruptcy won't preclude a borrower from obtaining a FHA Loan. Ideally, a borrower should have re-established their credit with a minimum of two credit accounts such as a car loan, or credit card. Then wait two years since the discharge of a Chapter 7 bankruptcy, or have a minimum of one year of repayment for a Chapter 13 (the borrower must seek the permission of the courts). Also, the borrower should not have any credit issues like late payments, collections, or credit charge-offs since the bankruptcy. Special exceptions can be made if a borrower has suffered through extenuating circumstances like surviving a serious medical condition, and had to declare bankruptcy because the high medical bills couldn't be paid.