FHA Loans Overview

A government-insured mortgage loan offered by private lenders, backed by the Federal Housing Administration (FHA).

A government-guaranteed mortgage loan available to eligible veterans and active-duty military personnel.

A government-guaranteed mortgage loan designed to promote homeownership in rural areas.

A process where FHA-approved lenders underwrite and approve FHA loans directly, without needing further review by the FHA.

The highest loan amount the FHA will insure, based on the property's location and loan type.

Upfront Mortgage Insurance Premium, a one-time payment made at closing for FHA loans.

Annual Mortgage Insurance Premium, a monthly payment added to your FHA mortgage payment.

Loan-to-value ratio, a percentage representing the amount of the loan compared to the value of the property.

While the VA doesn't specify a minimum credit score, lenders generally won't approve loans below 600.

The DTI, which represents your monthly debt payments compared to your gross income, should not exceed 41% for VA loan approval.

After subtracting taxes, housing costs, and debts from your income, VA loans require a sufficient amount of residual income remaining for basic living expenses.

Net Effective Income is your gross income minus taxes, housing expenses, and all recurring debts.

USDA Section 502 Guaranteed Loans are primarily for low-income homebuyers in rural areas, defined as towns under 35,000 population or counties with less than 50,000.

These loans, offered directly by USDA, do not require a lender. They're also designed for low-income homebuyers in rural communities.

These loans are provided by a lender and guaranteed by USDA for 90% of the loan amount.

USDA loans have no required down payment, can be used for buying, building, repairing, or relocating homes, and offer only fixed-rate 30-year loans.

The minimum credit score required for an FHA loan depends on the down payment. With a 3.5% down payment, the minimum score is 580. With a 10% down payment, the score can be as low as 500. Lenders can set higher minimums.

FHA allows borrowers to 'roll-in' most closing costs into the total loan amount, making it easier to afford. However, prepaid interest, taxes, insurance, and escrows must be paid upfront. The 3.5% minimum down payment does not include cash paid at closing.

Allowable sources for a down payment include funds from a state housing agency, grants from non-profit housing agencies, and documented gifts from relatives.

The primary requirement for a VA home loan is qualifying service in the U.S. armed forces. This includes veterans, active duty service members, and surviving spouses under specific conditions.

Eligibility for a VA loan is based on length of service. Most veterans qualify after 181 days of active duty. Active duty members qualify after 90 days, and National Guard/Reserve members after 6 years. Surviving spouses qualify under certain conditions related to the veteran's death or disability.

A veteran's VA loan entitlement is based on their previous use of the benefit. Full entitlement means they've never used the benefit, or have fully repaid previous VA loans. Partial entitlement means they've used the benefit but not fully repaid previous loans.

The maximum VA loan amount is based on the borrower's entitlement and the FHFA conforming county loan limit where the property is located. With full entitlement, the loan amount is not limited by the county limit. With partial entitlement, the VA will guarantee up to 25% of the loan amount, and the veteran can potentially use their remaining entitlement to exceed the county limit.

The VA funding fee is a one-time payment that the VA loan borrower pays as a closing cost. This fee offsets the cost of the program and can be paid in cash or added to the loan amount. The fee varies based on the veteran's circumstances, previous use of the benefit, and LTV ratio.

The VA funding fee is waived for certain veterans and surviving spouses. Waivers apply to those receiving VA disability compensation, eligible for compensation but receiving other pay, surviving spouses of a Veteran who died in service or from a service-connected disability, and service members who received the Purple Heart.

VA-approved lenders underwrite VA loans according to published VA guidelines. The main focus is determining that the veteran is a satisfactory credit risk and has income that supports the repayment terms.

VA loans are typically underwritten using automated systems like Fannie Mae's DU and Freddie Mac's LPA, but manual underwriting is used when automated systems are not applicable.

Borrowers' employment, income, credit history, and assets are verified in the same manner as for conventional and FHA loans. These factors are crucial for determining the borrower's ability to repay the loan.

Collateral, or the home itself, is appraised to determine its value and suitability for the loan. The appraisal ensures that the home is worth at least the loan amount.

A borrower's capacity to repay the loan is determined based on their income and employment history. This involves analyzing their housing expenses and overall debt-to-income ratios. FHA allows higher debt-to-income ratios than conventional loans.

The property must be free of health and safety hazards. The lender may require repairs if the appraiser finds any issues that threaten the occupants' health, security, and safety. These requirements are essential to ensure a safe and habitable home for the borrower.