What are FHA and VA Loans
VA and FHA loans offer many programs and are especially helpful for 1st time home buyers and veterans. Many different kinds of mortgages are available to your mortgage lender. WeRLoans.com can help you. HUD offers some special home buying programs. Also, many local governments offer special home buying programs to help low-income homebuyers.
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An FHA loan allows you to buy a house with as little as 3% down, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.
The FHA does not make home loans--it insures them. If a home buyer defaults, the lender is paid from the insurance fund. To get an FHA home loan, you'll need to have a good, not perfect credit history, and sufficient income to qualify for the loan.
How Much Loan Can You Afford?
For an FHA loan, your monthly housing costs should not exceed 29% of your gross monthly income. Total housing costs include mortgage principal and interest, property taxes, and insurance. Those four terms are often lumped together, and referred to as PITI.
Example
Monthly income X 29% (.29) = Maximum PITI
For a monthly income of $3,500, that means 3,500 x .29% (.29) = $1,015 Maximum PITI
Your total monthly costs, adding PITI and long term debt, should be no more than 41% of your gross monthly income.
Example
Monthly income x 41% (.41) = Maximum Total Monthly Costs
For a monthly income of $3,500, that means $3,500 x .41 = $1,435
$1,435 total - $1,015 PITI = $420 allowed for monthly long term debt
The ratios for an FHA loan are more lenient than for a typical conventional loan.
For conventional home loans, PITI expense cannot usually exceed 28-33% of your gross monthly income, and total expense should be no more than 35-38%.
- To obtain an FHA loan, you must have a credit background that shows you meet your obligations.
- You must have enough income to pay your monthly debt, as outlined on page above.
- You must have enough cash to make a down payment at the time of closing.
- You must be able to pay the closing costs, which normally total 2-3% of the price of the home. These costs might include homeowner's insurance, attorney's fees, fees for a title search and title insurance, Mortgage Insurance Premium if you are paying less than 20% down, the loan origination fee, and a fee that goes into the FHA insurance fund.
- You might also be paying 'points,' to the lender. Each point equals 1% of the loan amount. Sometimes a seller will agree to pay your points, and sometimes points can be financed.
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