The Federal Housing Administration (FHA) was created in 1934 in order to kick start the failing housing market during the great depression. The Federal Housing Administration does not originate FHA home loans, but works with "approved" mortgage companies to provide FHA mortgages to home buyers. The FHA does not actually lend the mortgage money to home buyers, but instead "insures" the loan so that FHA lenders will be willing to lend money to home buyers.
The FHA 203(b) home loan program is the most popular FHA home loan with first time home buyers in Pennsylvania because this loan enables PA home buyers to purchase one to four unit homes (and FHA approved condominiums) with relatively little cash. The 203(b) loan only requires a minimum down payment of 3.5%. And, the seller is permitted (not required) to pay as much as 6% of the buyer's closing costs (seller assist). This loan also allows 100% of the cash needed at closing to be a gift from a relative, government agency or a non-profit organization. The credit criteria is not as strict as other types of home loans. The FHA home loan program is more forgiving with a few credit problems or the lack of traditional credit.
No, many people think that FHA loans are only available for first time home buyers. This is not true. FHA loans are available to anyone who meet the underwriting guidelines (rules).
The FHA limits the loan size, which can be a problem for some Pennsylvania borrowers. The following chart list the typical FHA loan limits for most US counties. There are exceptions to these limits (FHA loan limits in PA).
|Number of Living Units||FHA Loan Limit||Maximum Sales Price with minimum down payment|
|1 - Unit (i.e. single family)||$271,050||$280,881|
|2 - Unit (i.e. duplex)||$347,000||$359,585|
|3 - Unit||$419,425||$434,637|
|4 - Unit||$521,250||$550,518|
|Notice how the FHA loan increases with multiple living units|
As stated earlier, the reason the FHA mortgage is attractive to lenders is because the FHA "insures" the loan. If the borrower defaults on the mortgage, the FHA will reimburse (bailout) the bank for the loss. After paying off the bank, the FHA takes ownership of the foreclosed home. These repossessed homes are called HUD homes or FHA foreclosures. So where does the insurance comes from? The home buyer! The FHA requires all borrowers to pay at closing or finance a small amount of money. This cost is called the upfront mortgage insurance premium or the FHA funding fee. The amount is currently 1.75% for 15 and 30 year loans. Here's the FHA funding fee calculation:
|FHA FUNDING FEE CALCULATION|
|Sales Price or Appraised value whichever is lower||$100,000|
|Less FHA Down Payment (3.5% X Sales Price)||($3,500)|
|Equals the "Base Mortgage"||$96,500|
|Funding Fee Percentage - 1%||X 1.75%|
|Equals the Funding Fee Cost||$1,688.75|
In the previous example, the funding fee is financed, the upfront mortgage insurance fee of $1,688.75 is added to the base mortgage of $96,500, for a total FHA loan of 98,188.75. In addition to the funding fee, the borrower is also required to pay a small fee monthly with their mortgage payment. The funding fee and the monthly mortgage premium (mip) changes periodically, and currently, the calculation of the FHA monthly fee is somewhat complex, so here's an FHA loan calculator to estimate both the funding fee and monthly FHA premium.
The Federal Housing Administration regulates who may offer FHA insured mortgages. You can find a listing of FHA approved lenders in Pennsylvania on the mortgage rates page.
FHA citizenship requirements - US Citizens or permanent resident aliens (with proof of lawful permanent residency) - all borrowers must have a social security number and must legally live and work in the U.S.
Is there a maximum sales price for FHA loans in
No, just a maximum loan amount.
No. There are no first time home buyer requirements with FHA loans.
FHA loan occupancy requirements - Primary residence only (no investors) must be occupied within 60 days of closing. Non-occupant co-borrowers (co signers) do not have to occupy the residence.
FHA approved areas- All US states and eligible US territories
FHA debt to income ratio - The maximum debt to income ratios is 29/41%; however, there is the possibility for exceptions. Use the FHA Debt to Income Ratio Calculator to estimate how much house you qualify for.
How much does it cost to buy a house in Pennsylvania?
Use the PA mortgage calculator to estimate the down payment, closing costs and monthly payment for FHA, VA, USDA & conventional loans.