Advantages of an FHA Loan
The primary advantage of an FHA loan is that it allows individuals who may not qualify for a conventional mortgage obtain a loan. This makes it easier for those with limited credit histories or lower incomes to buy their first home. Additionally, these loans require only 3.5% down payment and have more flexible debt-to-income ratio requirements than traditional mortgages, making them even more accessible to many potential borrowers.
In addition to providing access to homeownership, FHA loans also have other advantages compared to conventional mortgages. For example, FHA loans have up front mortgage insurance premiums that are lower than conventional mortgages, which can help reduce the overall cost of the loan. In some cases, FHA loans may be assumable as well, meaning that if you sell your house in the future you can transfer your existing mortgage balance to the buyer without refinancing or taking out new financing. This can make your house more attractive to buyers since they may be able to obtain financing without having to go through the process of applying for a new loan from scratch.
Finally, unlike conventional mortgages which require borrowers to pay private mortgage insurance until their equity reaches 20% of their total loan balance, FHA loans do not require this additional payment once you reach 78% equity in your property (after 5 years). This saves money over time and helps make homeownership more affordable for those with limited funds available for upfront payments or ongoing monthly expenses associated with owning a home.
How Do FHA Loans Work?
FHA home loans are available for both single family and multifamily homes and can be used to purchase a primary residence. The FHA doesn’t issue loans or set interest rates, but instead it guarantees against default. This means that banks can continuously issue loans without much risk or capital requirements, making them more willing to provide financing options to individuals who may not qualify for a conventional mortgage.
Biggest Benefits of an FHA Loan
Perhaps the biggest benefit of obtaining an FHA loan is that it allows individuals with less than perfect credit obtain a loan - especially first time home buyers. These loans also offer low minimum down payments, reasonable credit expectations, and flexible income requirements. Additionally, because these loans are backed by the government, lenders typically don’t require borrowers to pay private mortgage insurance (PMI) as they do with traditional mortgages.
Another major advantage of FHA loans is that they allow borrowers to roll their closing costs into the loan - meaning you won’t have to pay out of pocket at closing time. However, this comes with one caveat; doing so will result in a higher overall loan amount which can lead to more interest paid over time. That said, if you don’t have enough cash on hand at closing time then this could be a viable option for you.
FHA Loan Requirements
What documents do I need for an FHA Loan?
Your loan approval depends 100% on the documentation that you provide at the time of application. You will need to give accurate information on:
- 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
- Complete bank statements for all accounts for past 3-months
- Recent account statements for retirement, 401k, Mutual Funds, Money Market, Stocks, etc.
- 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.
- 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
What Can I Afford With An FHA Loan?
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
Vancouver and Portland trust Prism Lending Partners with their loan applications to get a competitive rate and have a great experience. We actively work with you to ensure that you are able to purchase the house that you desire.
Our local presence means that we are accessible and knowledgable about the SW Washington and Portland Metro area.
When you need a local mortgage company to be with you during the process, call us.
Competitive mortgage rates for borrowers in Vancouver, Portland, Camas, Battle Group, and all of SW Washington means that you get a competitive rate. Want to know how we do it? Call Us.
Find the loan that's right for you.
Our team will help you find the right loan for you at the right time. We offer products and have an understanding of the market at all phases of the real estate cycle. We are committed to guiding you through selecting a loan and will help you reach your personal and financial goals with transparency and professionalism.
FHA home loans are mortgages which are insured by the Federal Housing Administration (FHA), allowing borrowers to get low mortgage rates with a minimal down payment.
The most common type of loan option, the traditional fixed-rate mortgage includes monthly principal and interest payments which never change during the loan’s lifetime.
Low Down Payment
Loans where the borrower is able to wrap many of the costs and closing costs into the loan, lowering the amount needed to close.