FHA loans are loans that are backed by the Federal Housing Administration, which is a division of the U.S. Department of Housing and Urban Development, or HUD. Much like the VA, the FHA does not actually lend the money, but it does provide government backing in case of default on the loan. FHA loans can be fixed or ARMs, though most are fixed rate loans. Some key benefits of an FHA loan are:

  • FHA loans require that you put only 3.5% down on the total loan and the down payment can be a gift from family members or others
  • Lenders may be more willing to lend to you because the mortgage will be insured by the FHA
  • Mortgage insurance premiums (MIP) are charged in an upfront lump sum and added on to the loan amount. This saves you from having to get PMI which would raise your monthly payment
  • No interest rate penalty for people with credit issues. FHA offers the same interest rate to all borrowers
  • Higher debt ratios mean you can qualify for an FHA loan with more monthly debt that you would be able to with a conventional loan
  • No minimum credit score for FHA loans. You can qualify for an FHA loan in as little as 2 years after a bankruptcy and 3 years after a foreclosure
  • For first time buyers, non-occupant co-borrowers are allowed
  • Sellers can contribute up to 6% of the closing costs, whereas in conventional loans, they can only contribute up to 3%


FHA Loan Requirements

There are some key requirements that you must meet before obtaining an FHA loan.

  1. You must show proof of stable earnings for the previous 2 years
  2. No late payments on your credit for the last 2 years. Furthermore you cannot have had a bankruptcy in the last 2 years or a home foreclosure in the last 3 years
  3. The new monthly payment on your FHA mortgage cannot exceed 30% of your gross income
  4. Must be a legal resident of the U.S., be of legal age, and also have a valid Social Security Number


FHA Loan Limits and Closing Costs

The FHA loan limits for San Diego County are:

Single Family- $697,000
Duplex- $892,950
Triplex- $1,079,350
Four-plex- $1,341,350

Closing Costs- FHA loans have strict guidelines regarding closing costs. They restrict not only how much you can be charged but also which closing costs can be charged to you. Here is a list of closing cost charges which are allowed:

  • Application fee
  • Origination fee
  • Credit report fee
  • Title search and insurance
  • Closing attorney costs
  • Recording fee and transfer fee
  • Documentation prep fee
  • Survey
  • Home inspection
  • Termite inspection
  • Courier Fee or Recording fee

Remember, in many cases you will be able to negotiate down some of these costs by asking the seller or builder to take on these fees. Call us at Benchmark Mortgage, to find out more: 619-266-7600

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