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FHA LOAN OVERVIEW

 

Charlotte NC Area FHA Mortgage Loan Requirements 


 

FHA loans in Charlotte fell out of grace for a few years, but since 2005 have rebounded!  It's a homebuyer loan product that has been around for a long time, since June 27, 1934.  The Department of Housing & Urban Development folded the Federal Housing Administration (FHA) under its umbrella in 1965.

Currently, the FHA Home Loan, better known as the FHA 203(b) Program is one of the most popular loan products used by many First Time Home buyers in the Charlotte area in today's market!

The FHA Loan is a guaranteed loan backed by the Federal Government to insure the home purchase of borrowers who may not qualify for conventional loans due to lack of down payment or credit history.  

The FHA Loan is an excellent loan program for First Time Home buyers!

How The Government Ensures Your FHA Loan:

Charlotte NC FHA loans require a monthly Mortgage Insurance (MI) payment. The payment is calculated as 0.85% of the loan amount and divided by 12 months. Example: $200,000 x 0.85% = $1700,  then $1700/12 = $141.66 monthly MI. MI will continue on an FHA loan until for the life of the loan until you either sell your home or you refinance.

Without paying anything additional towards principal, this is usually about 10 years on a regular amortized schedule. The minimum term for FHA MI is 5 years and can be removed from your monthly mortgage payment at that time. 

FHA mortgage will also require an up-front MIP of 2.25% (of the loan amount) on purchases. The up-front MIP is amortized over 7 years and if a borrower chooses to refinance or sell the property during those 7 years, that borrower will receive and prorated refund of the up-front MIP. 


Charlotte NC FHA Loan Important Facts:

  • Loan Limit - The maximum Loan limits for FHA loans in the Charlotte, NC area is $217,050.  This means the home purchase price can not exceed this amount. 
  • Credit Score - The Federal Housing Administration insures FHA loans and did not use to require a minimum FICO score but the new FHA Policy changes requires a minimum FICO score of 580 for 3.5% down payment and anyone purchasing with a score lower than 580 will require 10% down payment. These changes went into effect in early summer of 2011.

    NOTE: Some lenders have their own score requirements that are in addition to those accepted by the Federal Housing Administration and will require a minimum credit score of 620, 640 or better. 

    Less than a handful of lenders will accept mid-scores down to 580 but you will need to have other compensating factors such as a larger down payment, a good amount of reserves, low DTI, and the loan will require Direct Underwriting (DU) approval or need to be manually underwritten. 
  • Established Trade Lines - FHA mortgage requirements state that you must have at least two lines of credit that you have maintained for at least 2 years. Some lenders can use alternative lines of credit (such as cell-phone / home-phone bills, utility bills, rent history, car insurance, etc..) to establish payment history. 
  • Late Payments - FHA does not have mortgage requirements for late payments however; individual lenders have restrictions on late payments made in the last 12 months. Greater emphasis is placed on late mortgage or rent payments in the last 12 months. Lenders may overlook a period of late payments on revolving and installment accounts as long as your overall payment history is not consistently poor. NOTE: Mortgage late payments made in the last 12 months means that the loan will require manual underwriting and approvals are on a case-by-case basis. 
  • Collections - FHA mortgage requirements do not specify that all collection be paid off. Collections are evaluated on a case-by-case basis though certain lenders may require collections to be paid. 
  • Bankruptcies - Chapter 7 must be discharged for at least 2 years with no late payments since the date of discharge.  Chapter 13 must be discharged for at least 1 year with no late payments on any credit trade line since the date of discharge and no late payments to the court on the bankruptcy. 
  • Liens - FHA mortgage requirements will not allow for any delinquent federal debt such as student loans or tax liens. 
  • Judgments - FHA requires that all open judgments be paid in full and released from the land records prior to closing. 
  • Foreclosures - FHA eligibility requires that at least 3 years have passed since the date of the foreclosure. 
  • Child Support - FHA mortgage requirements do not allow for any past due child support on the credit report. The past due child support must be brought current and released by the court.  If you are paying court ordered child support, it is considered a liability payment (even though it may not show up on your credit report or your pay stubs as wage garnishment) and counts against your debt ratio (DTI). Receiving court ordered child support is considered a source of income.
  • Down Payment - FHA mortgage requirements for a home purchase have a minimum down payment of 3.5% of the sale price. The down payment must be sourced and seasoned (can not be borrowed) and must come from the borrower or the donor of gifted funds such as a relative, spouse, or a domestic partner. Down Payment Assistance Programs for First Time Home buyers can also be used to help with your down payment and closing costs.
  • Seller Concessions - FHA mortgage requirements allow for seller concessions of up to 6% of the sales price.  NOTE: The new FHA Policy changes limit seller concessions to 3% of the sale price. This went into effect early summer of 2011. 
  • Reserves - FHA does not have any financial reserve requirements on single family homes and duplexes. Three months of reserves are required on 3 to 4 unit family homes.
  • Income Requirements - For W2 applicants- FHA requires 2 years of employment with stable income using W2 forms  -For 1099/Self-Employed - FHA requires last 2 years of tax returns as proof of income. NOTE: A borrower that transitioned from a W2 employee to self employed in the last 2 years is not eligible. -For Part-Time - FHA allows for income from part time employment as long as it has been for no less than 2 years. -For other Income - FHA allowable income includes court ordered child support, alimony, stock dividends, military allowances, disability, retirement, and any other verifiable source.
  • Contingent Liability - A borrower who co-signed for another person's debt is liable for that debt. This debt obligation can be excluded from the debt ratios if the borrower can prove that the payments made on that loan were made 100% by the other person and on time over the course of the last 12 months. 
  • Projected Obligations - FHA mortgage requirements state that any debt repayment (such as student loans) that is supposed to begin within 12 months must be included in the debt ratios.
  • Rental History - Good rental history for the last 12 months is important. A lender will require a Verification of Rent (VOR) from a Rental Management Company. Some lenders will accept 12 months of canceled checks showing rental history if the landlord is a private owner. FHA mortgage requirements allow for no rental history if the borrower is living with family. However, this may be at the discretion of the particular lender.
  • Owner Occupancy - FHA mortgage requirements state that the property occupancy must be a primary residence. No investment property or second home ownership is allowed.  FHA mortgage requirements do allow for non-occupant co-borrowers.

 

If you would like more information about FHA Loan in the Charlotte NC area, or on getting pre-approved for an FHA home loan, please feel out the form below or you may call us directly at 704-965-3319.  


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Top Charlotte Realtor Trena Miller
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Trena Miller

Pruitt Miller Realty Group
Charlotte, NC 28262

704-965-3319
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10130 Mallard Creek Rd #300 - Charlotte, NC 28262
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