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How do I get an FHA loan in Papillion NE?

“How do I get an FHA loan in Papillion NE?” is a common question. While not a first time home buyer program, FHA is often used by first time home buyers. Its guidelines provide benefits that suit people purchasing their first home. Home prices in Papillion Nebraska fits nicely into FHA loan limits, which makes it an excellent program for Papillion home buyers.

What is an FHA loan?

The Federal Housing Administration insures FHA loans. They provide access to funds previously not available to home buyers because of credit, income, or assets requirements of other financing options. It is a common misconception that FHA loans are for first time home buyers but this is not the case. Anyone that qualifies can get an FHA loan.

What are FHA credit score requirements?

FHA is much more forgiving on credit score than other loan programs. It will allow lower scores so buyers with credit issues or lack a lengthy credit history still have access to home ownership. The FHA minimum credit score required is 580. However, not all lenders will go down to that minimum. Banks and mortgage lenders can add “overlays” to the FHA rules. Many lenders require a 620 credit score on FHA even though that is not the FHA rule. At Petrovich Team Home Loan we strongly recommend a buyer have a score of 620 before purchasing a home. Even lenders offering an FHA loan below 620 will add thousands in additional fees and offer a much higher rate. If you are interested in purchasing a house but think your score is less than 620, programs are available to help. Our team can give you some guidance and, if needed, we can recommend credit counselling. We strongly recommended taking a bit of time getting your scores up past 620 score before purchasing any home.

What are FHA credit history requirements?

FHA is also more forgiving on your credit history. The wait time after a bankruptcy or foreclosure is much shorter for FHA than on other loan programs. FHA has options for buyers with a very thin credit history. First time home buyers that have not had a chance to build their credit with active and past debts might qualify for FHA when other programs turn them down. If you have collections do not pay them off until you have talked with a mortgage loan officer. FHA might not care about those collections and paying them off could actually hurt your credit score. If you have active judgments FHA will require you to pay these off or start a payment plan before purchasing.

What are FHA income and debt ratio requirements?

Income and debt ratios is another advantage FHA has over traditional loan programs. All loan programs will use your gross monthly income and most will require the house payment stay under 35% of that gross monthly income. Most loan programs also require all your monthly obligations add up less than 46% of your gross monthly income. However, FHA will go over 40% on the housing ratio and up to 56.99% on the total debt ratio. This means the house payment can be 40% of your gross monthly income and the total monthly obligations can be up to 56.99% of your gross monthly income. For someone with a more modest income or just starting out their career this is an excellent option to get into a home. This can be a bit confusing so if you think your debts are high or are concerned about monthly mortgage payment contact a local mortgage loan officer for a consultation to figure out exactly what you can afford.

What funds are allowed on an FHA loan?

FHA will use any liquid funds. The funds in your bank or investment account are liquid. The value of your car and other property are not liquid unless you sell them first. If you do plan to sell property for funds to close please contact a local mortgage loan officer for the exact steps required to sell property and use the funds. FHA allows borrowed funds as long as they are borrowed against property and the buyer qualifies with the new debt. A line of credit on another home or taking cash out on a car loan are acceptable, but cash from a credit card or unsecured loans are not. A family member can also gift funds needed at close. They sign a letter saying it is not a loan and the home buyer is not obligated to pay it back. FHA requires personal information from the donor so we need to make them aware of all documents needed before donating. Unless the assets are currently in your bank it is best to contact a loan officer to create a plan for documenting assets.

Every situation is different so discussing assets with an expert early will prevent headaches later in the home buying process.

How much cash do I need for an FHA loan?

FHA requires a 3.5% down payment and we need to verify at least this amount well before close. Like all loans, FHA has closing cost and an escrow account. These can be several thousand dollars so getting an accurate cost and escrow estimate is important. A local loan officer can estimate closing cost and escrow to give you an estimate of cash needed at close. Once we have an estimate we can figure out if it is necessary to ask the seller to cover some of the cost. The cost of an FHA loan in Papillion NE is going to be a lot different than an FHA loan in other parts of the state. Papillion has a unique way of calculating tax payments. A local expert can help with this process.

Does FHA allow co-signers?

Absolutely! This is one of the big advantages of an FHA loan. A family member can co-sign on the loan even if they are not living in the house. If a buyer does not meet all the income, asset, or credit requirements of an FHA loan, a family member can sign on the loan to help. The co-signer will be on the mortgage just like if they lived in the house. We are happy to explain to a co-signer how the process works and create a long-term plan to remove the co-signer as soon as the buyer is able to qualify on their own.

What are the advantages of an FHA loan?

FHA loans are uniquely suited for new home owners and those having credit issues because it allows more flexibility on credit, income, and assets. If you have average or below average credit scores, FHA is the best, and sometimes only option, available. FHA will still offer competitive rates and a low down payment even with less than perfect credit. FHA allows higher debt to income ratios. If you are just starting your career or have, a limited amount of verifiable income, you’re more likely to get approved for FHA financing. FHA also has more options for funds needed at close. The seller can credit the buyer up to 6% of the purchase price to cover closing cost and escrow. FHA also allows a gift funds from a relative to cover some or all of the cash needed.

What are the disadvantages of an FHA loan?

FHA is a great program and it opens up home ownership to people that otherwise would not qualify. However, it does have two disadvantages. First it does have Mortgage Insurance. This is a monthly fee added to the mortgage payment to insure the lender against default. Mortgage Insurance does not insure the buyer. It is a fee paid to protect FHA and the lender against default. While Mortgage Insurance is common on many loans, FHA is the only loan program that keeps the Mortgage Insurance for the life of the loan. It never drops off. The second disadvantage is the Upfront Mortgage Insurance. In addition to the monthly MI fee, FHA charges a 1.75% fee at close. This is rolled into the loan. Buy a $100,000 house you will take out a $96,500 loan and FHA will add $1750 to the loan. Your total loan amount will be $98,250. This upfront fee only protects the lender and FHA.

Why is FHA a great fit for Papillion NE?

FHA is a great program, but one of its restrictions is loan size. FHA is limited to $314,827 (a very random number I know) so this can create issues in areas with higher average home values. In Papillion NE the average home price as of 2018 was $251,400. Most homes in Papillion NE are going to fit into the FHA loan limits. Petrovich Team Home Loan is located in Papillion NE and can help determine if the FHA loan program is right for you.

What to do next?

Getting a home loan is a very local purchase. It is important to sit down with a local expert who knows the area and can provide the most accurate mortgage estimates. This is even more important on an FHA loan because many FHA buyers have limited funds to contribute to the closing and will need the most accurate estimates.


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