What about 3.5 % down FHA Loans?

FHA loans are the easiest type of real estate mortgage loan for which to qualify. Plus, rates are at historic lows. Our government is making it possible for almost anybody to buy real estate!

The current maximum FHA loan amount for San Diego County is $546,250, and for Orange County is $625,000.

Here's a summary of FHA loans:

Loan Applicant/Borrower at a Glance
* Only 3.5% downpayment is required (e.g.: $14,000 on a $400,000 purchase).
* The entire downpayment may be a gift from a friend or family member.
* The Seller cannot credit anything toward the downpayment (no carry-backs).
* You can add as many co-borrowers as you need to qualify for the mortgage.
* No reserves required.
* Two Years of steady employment, preferably with same employer.
* Last two years Income should be the same, or increasing.
* Credit report should typically have less than two thirty-day late payments in last two years.
* Minimum credit score of 580 or higher – or, no credit score at all.
* Bankruptcy's must be at least two years old, with perfect credit since discharge.
* Foreclosure's must be at least three years old, with perfect credit since.
* New mortgage payment should be approximately 30% of your gross (before taxes) income.
* The Seller can credit you 6% towards ALL costs due at closing.
* If you require mortgage insurance (PMI), your payments are lower with FHA.

Condition of Property Being Purchased
* A termite report is required.
* The appraiser may comment on health & safety repairs needed.

Refinancing
* If rates drop, refinance! FHA does not require a new credit, new appraisal, new income documentation, etc.

Income to Debt Ratios

In addition to your income, an FHA lender will look at your minimum monthly debts to calculate your income to debt ratios. The debt ratio is what will determine "how much" of a FHA loan you can afford. The two types of debt ratio's will be use:

(1) Front-End Ratio - your gross income divided by the new PITI mortgage payment. The standard guideline is 29%.
(2) Back-End Ratio - your gross income divided by the new PITI mortgage payment plus the minimum monthly payments from you liabilities. The standard guideline is 41%.

Following are the typical debts used to determine your qualifying ratio's:

Front-End Ratios
· Your current and or future house payment

Back-End Ratios - the minimum required monthly payments on all of the following:
· Auto Loans - (except if there is less than 9 months left to pay off)
· Student Loans - (except if there is less than 9 months left to pay off)
· Personal Loans (except if there is less than 9 months left to pay off)
· Charge Cards - minimum required payments only.
· Child Support - (except if there is less than 9 months left to pay off)
· Alimony - (except if there is less than 9 months left to pay off)
· Federal Tax Lien Repayment Schedules - (if less than 9 months not calculated)

Following are monthly liabilities that are NOT used to calculate debt ratio's:
· Utility Bills
· Car & Health Insurance
· Cell Phone Bills
· Any bills not reflected on your credit report.

The percentage of debt to income is called the debt-to-income (a.k.a.: back-end) ratio. A good goal is to spend no more than 38% of your income on all debts, including house payment. However, under FHA home loan guidelines you're allowed to spend up to 41% of your monthly income on housing and other debts -- if the rest of your loan application shows you can handle it.

An example of the income to debt calculation is as follows:
· Income = $3,000
· New Mortgage Payment = $900.
· Minimum Monthly Payments = $300
· "Mortgage" divided by "Income" = 30%
· "Mortgage + Monthly Payments" divided by "Income" = 40%
In this scenario, your front-end is 30% and back-end is 40% which is acceptable for a FHA loan.
These ratios can also adjusted or exceeded if there are item(s) you can payoff, if the interest rate drops, the loan amount drops, etc.

Documents Required for FHA Application

The loan approval process is 100% dependant on the documentation you provide. Here's what you will need:
* Employment Information
* Most recent two years complete tax returns with all schedules.
* Most recent two years W-2's, 1099's, etc.
* Most recent pay stubs covering one month period.
* If Applicable: Self-Employed will need Three years Tax Returns and YTD Profit & Loss Statement.

Savings Information
* Most recent three months complete bank statements for any and all accounts with all pages.
* Most recent statement from retirement, 401k, mutual funds, money market, stocks, etc.

Credit Information
* Most recent statements from your bills, indicating minimum payments and account numbers.
* Name, Address, and Phone number of your landlord, or 12 months cancelled rent checks.
* If Applicable: Should you have no credit, copies or your most recent utility bills will be needed.
* If Applicable: Copy of complete Bankruptcy and Discharge Papers.
* If Applicable: If you co-signed for a mortgage, car, credit card, etc, need 12 months cancelled checks. front and rear, indicating you are not making payments.

Personal Information
* Copy of Drivers License.
* Copy of Social Security Card.
* If Applicable: Copy of complete Divorce, Palimony, Alimony Papers.
* If Applicable: Copy of Green Card or Work Permit.
* If Applicable: If you own another home(s) - see below

If you are refinancing, or if you own Rental Property, you will also need:
* Copy of Note & Deed from current loan.
* Copy of Property Tax Bill.
* Copy of Hazard (homeowners) Insurance Policy.
* Copy of Payment Coupon for current Mortgage.
* If Applicable: If property is multi-unit, need Rental Agreements.
* Additional documents may also be needed - on a case-by-case basis.

Conclusion: FHA is the most flexible lender regarding debt ratio's. Never rule yourself out. Buying a home may be more affordable than you know.

Call us! (909) 702-3220. Explore your real estate purchase options. The government is doing everything possible to help you!