Blog with MAE Capital

FHA Loans were born during the great depression in 1933.  The idea of the government insuring a Real Estate loan, at the time, was groundbreaking.   In today’s world, we expect the government to step in and try to fix things when the economy is sluggish or depressed.  In 1933 our government was far less a part of the ordinary citizen’s life and it did not financially take care of its citizens like they try to do today.  So when the private sector was approached by the government to insure mortgages that were traditionally insured privately by large down payments was a groundbreaking concept.  At the time Banks and Brokers were the only way to get a home loan and they required that a potential home buyer put 25-50% or more down to buy a home.  So when the government said they would insure mortgages up to 95% of the value of the home, you can imagine how this changed the way Real Estate Loans were originated.   It was designed to stimulate housing growth to get the country out of the grips of the Great Depression.  It worked, along with a whole new age of people relying on the government to help them when things were tough.  Out of the Great Depression, we also got a welfare system, unemployment insurance that the government collected from employers to help with displaced workers and a whole litany of other programs that expanded the scope of the Government.  The Federal Housing Administration (FHA) was designed to be a short-term way to get the housing markets stimulated to get America out of the Depression.  The program still exists today, and you can take full advantage of it and you can get a mortgage up to 96.5% of the purchase of a home.  

Today FHA loans are still alive and well and are used still today to get people into homes with a small down payment.  FHA loans are still viable loans for those who have a small amount of money to purchase a home.  The way an FHA loan works is very similar to Conventional Loans in that a potential borrower must qualify for the loan with their income and a current credit score.  When we say qualify there are several factors that a lender must review in order for a client to “qualify” for any loan.  These factors are but not limited to having shown the ability to handle credit or in today’s world, have a credit score that meets the criteria of an FHA loan (550 or better).  Generally speaking, FHA loans are more liberal when it comes to having a good credit score than that of its Conventional counterpart that requires a 640 score or better.  If a borrower has a low credit score due to circumstances out of his or her control and has shown that they are trying to take care of it and that is the only factor with regards to their financial situation they generally can get approved for a FHA Loan.  There are several other factors that must fall into line before that can happen, however.  For instance, a borrower’s house payment combined with their monthly bills should not exceed 43% of their gross monthly income.  This brings us to verifying income and what is required by FHA.   First, a potential borrower must have a two-year history of working which could be multiple jobs or a combination of school and a job, and must be able to show that their income will be stable enough to maintain the mortgage payment. Next, a borrower has to be able to prove they have enough money for the 3.5% down payment.  This money can come from savings or can be a gift from a relative a close family member or friend, or an approved Down Payment Assistance Program.   

We talk about FHA loans being federally insured loans, but what exactly does that mean when you have to pay the mortgage insurance on an FHA loan? Simply put there are two payments to the insurance fund a borrower will have to make; One the upfront insurance is 1.75% of the loan amount (Sales Price minus the 3.5% down payment requirement) this is actually added to the loan so you don’t have to come out of pocket for this; Two the monthly payment of the mortgage insurance is a small percentage of the Loan amount every month.  These insurance payments go into pools that are designed to protect the lender’s yield on the loan if there is a foreclosure.  This insurance makes FHA loans more appealing to lenders and thus lenders have more flexible underwriting guidelines and can get more people into homes utilizing the FHA Loan.  

Talking about flexible Underwriting guidelines your eyes probably just rolled to the back of your head as this may sound confusing.  Not to worry I am here to help break it down to simple bullet points that you may not have heard of before.  Being evaluated for loan approval seems daunting but that is why we have a team of folks to walk you through the whole process.  Our highly qualified loan originators will walk you through the process.   The Loan Officer will gather your pay stubs, tax returns, bank statements, and W2s and they will do the analysis for you.  Your loan officer will check your credit, check your debt-to-income ratio, and make sure you have enough money verified to close the transaction.  The loan officer’s job is to paint your financial picture with your financial information and present it to the underwriter, who will approve your loan.  Our Loan Officers do this every day, multiple times, so they are experts at what it takes to get an FHA loan approved, so When you are looking for expert advice and guidance please let us walk you through this process.  

The benefits of using an FHA Loan are:

  1. You Only need 3.5% for a down payment and that can come from your savings, a gift from a family member or an employer, a government institution, or an approved down payment assistance program.
  2. Your Credit Score can be as low as 550.
  3. Your Debt-to-Income Ratio can be as high as 50%
  4. Interest Rates are Lower
  5. You can take cash out of your home up to 85% of the value of the house.
  6. You can finance 1-4 units utilizing FHA when owner-occupied.
  7. You can buy a house 2 years out of bankruptcy.
  8. You don't have to be a perfect person to qualify for an FHA Home Loan
  9.  Utilize a co-borrower to qualify in today's world of higher interest rates.
  10.  Finance your closing costs with FHA, and ask your loan officer how.

Now that we have explored the history and the benefits of using an FHA loan you may ask:  “How do I apply for an FHA Loan?”  At MAE Capital Mortgage Inc., we have over 38 years of experience working with FHA loans, so we should be your logical choice, not to mention our interest rates are better than the rest.  Simply click on this link and you can start the process or call us at 916-672-6130 and we can do it for you over the phone.     


Posted by Gregg Mower on August 29th, 2023 10:08 AM



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