Houston Mortgage First-Time Homebuyer – Frequently Asked Questions (FAQ) – Part 7

Part 7: Getting Government Assistance on Your Home Loan

For some who are interested in becoming a homeowner, qualifying for a conventional loan may be out of reach. Whether due to a lack of a sufficient down payment or an insufficient credit history, certain roadblocks can stand between you and homeownership. Thankfully, for those who qualify, certain government financing programs can still make the dream of homeownership a reality. To help you understand your options, here are the answers to some Frequently Asked Questions (FAQs) about how HUD and the FHA can help you become a homeowner.

What is the HUD?

HUD, or the U.S. Department of Housing and Urban Development, is responsible for developing national
policies and programs that focus on housing needs in the United States. Established in 1965, one of the primary missions of the HUD is to enforce fair housing laws while also developing and improving communities
throughout the country.

What is the FHA?

The FHA, or Federal Housing Administration, is an agency within HUD that was established in 1934. The
FHA provides lenders with mortgage insurance, which gives the lenders the security they need to make
loans to first-time buyers who do not qualify for conventional loans. To qualify for an FHA loan,
you do not need perfect credit, a high-paying job or a large down payment.

How can HUD help me buy a home?

HUD administers a variety of programs that help develop and support affordable housing. This is accomplished in part by providing loans to low- and moderate-income families through the FHA mortgage insurance program and by offering affordable homes through the HUD Homes program. HUD also helps buyers
and homeowners through housing rehabilitation initiatives and protection through education and Fair
Housing Laws.

How is the FHA funded?

If a lender makes a claim through the FHA mortgage insurance program, the necessary funds are obtained
from the Mutual Mortgage Insurance fund. The Mutual Mortgage Insurance fund is funded entirely by the
premiums that are paid by FHA-insured borrowers.

How I can qualify for an FHA loan?

You can qualify for an FHA loan if you:

  • Meet the credit requirements, which includes proving that you have consistently paid your bills on time
  • Can afford to make the mortgage payments and other cash investments related to homeownership
  • Have had a steady income for at least three years
  • Can pay the minimum 3.5 percent down payment, which can come from your personal funds, from
    cash gifts from friends and family, or from fund through a private savings account
  • Plan to use the property as your primary residence

There are no minimum income requirements for an FHA loan.

What qualifies as a source of income when applying for an FHA loan?

While there are no minimum income requirements for an FHA loan, demonstrating a steady income is
important. Items that qualify as income include:

  • Alimony
  • Bonus pay
  • Child support
  • Military pay
  • Overtime pay
  • Part-time pay
  • Rent paid by family
  • Retirement pension payments
  • Seasonal pay
  • Social Security income
  • Special savings plans, such as those set up by a community association or church
  • Unemployment compensation
  • VA benefits

Can I qualify for an FHA loan if I am carrying a debt?

Yes. Short-term debts that can be paid off within 10 months do not count and regular expenses, such as
childcare costs, are not considered to be debt. According to FHA guidelines, up to 29 percent of your
income can go toward housing costs and 41 percent can go toward housing and other long-term debt. This
differs from conventional loans, which allow 28 percent to go toward housing costs and 36 percent to go
toward housing costs and other long-term debt. If you exceed the debt-to-income ratio, you may still qualify for an FHA loan if you have:

  • A large down payment
  • Less-than-maximum mortgage terms
  • The ability to pay more toward your housing expenses
  • Significant cash reserves
  • Additional funds provided through an organization
  • A net worth that makes it possible to repay the mortgage regardless of your income
  • Limited credit use or an acceptable credit history
  • A decrease in your monthly housing expenses

Talk to your real estate agent or lender to learn more about the debt-to-income ratio requirements.

How much can I borrow with an FHA loan?

Borrowing limits vary throughout the country. Multi-unit homes have a higher loan maximum than single units.
Since loan maximums are linked to the average home prices in the area, loan limits are subject to chance.
Therefore, you should ask your lender for more details and to confirm the current limits.

How does the FHA loan process differ from the conventional loan process?

The FHA loan process is nearly identical to the conventional loan process, though there will be a few additional forms that you will need to sign. It is even possible to apply for an FHA loan via telephone, mail, Internet or video conference.

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