Bad Credit FHA Mortgage
FHA’s single family ARM program provides
mortgage insurance for anyone to purchase or refinance a home at a lower
initial interest rate. The mortgage loan is funded by a lending
institution, such as a mortgage company, bank, savings and loan
association and the mortgage is insured by HUD.
What are the eligibility requirements?
* Borrower must meet standard FHA credit qualifications.
* Borrower is eligible for approximately 97% financing. Borrower is able
to finance closing costs and the uppermost mortgage insurance premium
into the mortgage. The borrower will also be responsible for paying an
annual premium.
* ARMS can only be used in conjunction with Sections 203(b), 234(c), and
203(k).
* The index used to determine the interest rate is the U.S. Treasury
Security adjusted to a constant maturity of one year.
* Eligible properties are one to four unit structures.
FHA loans are for borrowers who need a loan no
larger than the loan size limits set by the FHA program; you cannot make
a 3% down payment requirement, or you have bad credit, or both.
Most FHA borrowers make down payments of less than 3 percent. FHA allows
you to buy a home with as low as 1% down. Private mortgage insurers,
however, require 5 percent down on most loans, and only allow 3 percent
down on special programs such as FHA. FHA also allows gifts to be used
for paying settlement costs.
FHA borrowers usually have poorer credit than private insurers accept.
FHA also allows a higher ratio of expense to income, is less
stringent in cases of debt, and will allow the income of co-borrowers
who don't live in the house to be taken into consideration in assessment
for suitability. Bad credit is less of an issue in making an FHA
decision. In this case, you need to be clear of a Chapter 7 bankruptcy
for only 2 years, and out of a Chapter 13 bankruptcy for only 1 year.
But there is a third group of FHA borrowers that shouldn't exist. It is
comprised of borrowers like you who would meet the requirements of a
conventional loan but are steered to an FHA. They pay more for their
loan than they should.
FHA loans are generally available in the market at
about the same interest rate as conventional loans comprising the same
term.