Obtaining a mortgage today is a much more daunting task than it was a few short years ago, due to the massive volume of loan defaults that resulted from fraudulent loan practices of the recent past. New government guidelines and regulations, as well as lenders’ self-imposed restrictions, have significantly tightened up the qualifications and processes of being funded for a mortgage. Most loans given today are backed by the federal government in what is called the “secondary mortgage market,” which means they will be sold to investors such as Fannie Mae and Freddie Mac.
Government-backed mortgages are provided by the Federal Housing Administration (FHA). In order to qualify for an FHA loan, you must meet the minimum following requirements:
- Two years of steady of employment, preferably with the same employer.
- Last two years of income should be the same or increasing.
- Credit score should have less than two thirty day dates in the last two years with a minimum credit score of 620 or higher.
- Bankruptcies must be at least two years old, with perfect credit since discharge.
- Foreclosures must be at least three years old, with perfect credit since.
- Total monthly mortgage payment (including principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowner’s dues, etc.) should be no more than 29% of gross monthly income.
- Total monthly mortgage payment added to all monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.) should be no more than 41% of gross monthly income.
There may be subsequent requirements, however if you meet the above qualifications you will most likely be approved for an FHA mortgage loan.
of these requirements are contingent upon your monthly mortgage payment and whether or not it fits within your means. This payment will vary depending on how much you put down when buying your home, the annual percentage rate (APR) of interest, and the length of your mortgage term.
If you are looking to buy a condominium, there are an additional, specific set of requirements that the building must meet in order to qualify for an FHA loan. Talk to your mortgage broker about these requirements so that you may conduct your condo search accordingly.
FHA loans also contain lending limits depending on your state. You can read about the limits for your state here.
Once your are ready to apply for your FHA loan, you should collect the following information to provide to your mortgage broker:
- Address to your place of residence (past two years)
- Social Security numbers
- Names and location of your employers (past two years)
- Gross monthly salary at your current job(s)
- Pertinent information for all checking and savings accounts
- Pertinent information for all open loans
- Complete information for other real estate you own
- Approximate value of all personal property
- Certificate of Eligibility and DD-214 (for veterans only)
- Current check stubs and your W-2 forms (past two years)
- Personal tax returns (past two years), current income statement, and business balance sheet for self-employed individuals
In addition, you will have to pay for a credit report and an appraisal of the property.
You may also have to provide for mortgage insurance, primarily if you are making a down payment of less than 20%. This is a means for lenders to protect themselves against losses that result from defaults on home loans. The amount of mortgage insurance you will be responsible for is also dependent on your down payment, your APR, and your loan term length.
Lastly, you will likely encounter some basic closing costs when finalizing the FHA loan for your new home. FHA regulations define which closing costs are acceptable as charges to the buyer. However, specific and customary costs are evaluated by each local FHA office.
An alternative option to applying for an FHA loan would be to pursue a portfolio loan. This type of loan is serviced directly by the lender and is not sold in the secondary market. These lenders are typically small banks and credit unions. Because portfolio loans do not get sold to Freddie or Fannie, they are less regulated than FHA loans, allowing for greater flexibility of qualifications. Since portfolio lenders have no standard set of regulations, their underwriting criteria may vary.
Some types of portfolio loans include LLC loans, blanket loans, and master loan commitments. These are convenient if you must avoid secondary market regulations such as a maximum number of four financed properties and no unseasoned cash out. Because of the huge variety and complexity of portfolio loans, it is wisest to speak directly with lenders to determine if this type of loan will work for you.
While the loan process can be challenging to navigate, Fenway Properties has the local knowledge to help you find a suitable lender. We have a vast amount of experience working hand-in-hand with several of Boston’s most experienced and qualified mortgage originators. We would be happy to recommend the best lender for your specific property needs.
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