The United States Department of Housing and Urban Development (HUD) began in 1965 (you can see why we prefer to use the shorter acronym). It was part of President Lyndon Johnson's Great Society Program and was created to reduce inequality in the housing market and to help more Americans afford homes. The HUD oversees homes owned by the government and ensures that all tenants and renters are treated fairly under the law.
With an annual budget of over $43 billion, HUD is still going strong today. More information on HUD and the many services they offer, such as programs for the disabled and single parents, is available at www.hud.gov.
The main thing to take into consideration when inquiring about Federal Housing Administration (FHA) guidelines is the minimum credit score for this type of loan. Whether you're interested in a first-time home purchase or a 203K Rehabilitation loan, the minimum credit score for an FHA loan is 580. Those with credit scores between 500 and 579 are, according to FHA guidelines, "limited to 90 loan-to-value (LTV) ratio." Borrowers looking to see if they meet the minimum score for FHA loans should be sure they are above the 580 mark. This would ensure they meet a major FHA requirement. Another point to mention is that the traditional and bare minimum down payment amount is 3.5% of the contract sale price of the home.
Although there are qualifications specific to FHA guidelines, most FHA Approved Mortgage Companies have some basic and functional guidelines about FHA that we want our clients to be aware of. Practical guidelines are just as important as the specific guidelines set by the FHA because they will help to stabilize your future home payments.
People often ask us, How much can I borrow? First, we would like to point out that you can never start saving for a home too early. No matter the amount you borrow, you'll need to be prepared. When people begin planning their home buyer budget so it will fit all the costs of an FHA loan, another question commonly arises involving FHA guidelines: How much should I have saved for my down payment?
When potential home buyers have been approved for a loan, whether it's FHA or conventional, they work with their mortgage professional to determine what monthly payments will fit their budget best. These low monthly down payments will include things like interest rates, taxes, mortgage insurance, and home-ownership fees. Costs can really add up, so having money saved for a down payment will help keep you financially on-track. Also, the guidelines of FHA require the down payments to be made by the buyer. The seller is prohibited from contributing a down payment. This alone is one of the main reasons why a long time period for planning and saving is strongly encouraged.
HUD Home Requirements in a Few Simple Steps
HUD homes are acquired when a house is foreclosed from an FHA-insured mortgage. You will find that HUD home requirements for a loan are almost the same across the country. The U.S. Department of Housing and Urban Development offers these HUD homes, which can be purchased as a primary residence through any mortgage program.
The FHA provides mortgage insurance solutions to the buyers of HUD homes. Clients who want to start applying for a mortgage for HUD homes must meet all HUD requirements. These usually vary according to the income and the credit status of the borrowers.
When a contract is completed by the seller and buyer, it is sent to be processed by an underwriter, along with other documents stating the buyer has been approved for a loan.
The documentation you will need to start the process includes:
• Social Security Numbers for both you and your spouse
• Paycheck stub to show earnings
• All credit card account information and current monthly payments
• Bank account statements for both checking and savings for the past 6 months
• Account information and balances due on other loans such as a car loan
• Income tax statements from the last two years
• Contact information for someone who can verify employment
• Documentation on other assets such as bonds or stock
The underwriter checks everything over for completeness and accuracy and whether the subject meets the minimum credit score for FHA loans. The purchase process can generally take up to one month in total.
When all the necessary documents have been reviewed and approved, they are sent to the lender (the bank). The process will then become clear-to-close (CTC) and HUD will review the settlement statement. Once the buyer has shown all paperwork and met the FHA guideline requirements, the individual has passed a big stepping stone in the purchasing process! Finally, the buyer will receive the title and take care of all necessary closing costs.
If you are considering a HUD home loan purchase or any other type of loan, Any of the FHA Approved Mortgage Companies can handle many FHA loans and can help educate you on what you will need to purchase your home without pulling your hair out. Call and speak to one of our representatives to find the best option for you.