FHA mortgages guidelines

Considering the rising popularity of FHA mortgages and FHA mortgage rates in today's market, this is a good time to review some basic guidelines for these mortgages -- loans that are insured by the Federal Housing Administration.

One of the key guidelines for FHA loans relates to the amount of loan an FHA applicant is eligible to receive. This, of course, is tied to the borrower's household income. The FHA loan officer will look closely at the mortgage's monthly payment amount in relation to the borrower's income and debt obligations. The FHA will want the borrower's mortgage payments (including principal, interest, property taxes and property insurance) to be no more than 31 percent of the family's gross monthly income.

The borrower's total debt obligations, include mortgage, credit cards, auto loans, student loans and others, cannot exceed 43 percent of the family's monthly income. These ratios are more generous than those required by most other non-FHA mortgages in today's market. Down payments can be as low as 3 percent of the purchase price. Even better terms and ratios are available to buyers of energy-efficient homes.

A property appraisal is required for all FHA mortgage loans. The applicant must disclose all "sales concessions" to the appraiser. This may include the seller paying for such cost items as discount points or origination fees, interest rate buy-downs, closing cost assistance and builder incentives.

The closing costs that FHA considers to be reasonable include lender origination fees (up to 1 percent of loan), attorney's fees, appraisal fees, home inspection fees (up to $200), title insurance, property survey, credit reports, and transfer and recording fees.

The FHA has credit history guidelines that play a role in determining the qualification of applicants. In most cases, credit scores above 620 will be acceptable. With re-established credit, applicants who still pay on a Chapter 13 bankruptcy can be eligible after one year of documented good credit. Those who filed Chapter 7 are eligible after two years. Applicants who have experienced a foreclosure are not eligible until at least three years have passed since the foreclosure date. In the interim, the applicant must have re-established good credit. However, if the foreclosure of the borrower's main residence was the result of extenuating circumstances, an exception may be granted if they now have good credit.

There is no established limit for the amount of an FHA mortgage. The amount is based on the median cost of homes in the local area. That amount is usually adjusted annually.

These are general guidelines for processing an FHA mortgage rates application. Keep in mind they do change from time to time. For more information, particularly related to the situation of individual applicants, consult with an FHA mortgage loan officer.

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