FHA loans are loans that are INSURED- not owned, funded, or purchased- by the Federal Housing Administration, a division of the US Department of Housing and Urban Development (HUD). FHA does not make, buy, or fund loans- it is a self-funded insurance policy. FHA underwriting guidelines are more flexible than conforming guidelines in every respect except collateral.
FHA will allow as little as 3.5% down payment on purchases, and will approve rate and term refinances up to 97.75%. The FHA construction (203k) loan allows for one closing and disbursements to the contractor as the work is completed, and in some cases will lend up to 110% of the 'as-repaired' value.
FHA guidelines actually allow for credit scores as low as 500, but most FHA approved lenders typically will not allow below 620. Cornerstone actually has FHA lenders that go as low as 560, in certain cases.
The FHA website gives detailed instructions for calculating the 'front' (mortgage only) and 'back' (total of all monthly obligations) debt to income ratio's and states the maximum desired ratio's are 31/43, but it is possible to get an FHA approval at higher debt ratios with compensating factors.
Although FHA rates are typically lower than conforming rates, there are two types of FHA mortgage insurance that will always almost result in a HIGHER monthly payment. The 'up-front' mortgage insurance requires an additional 1.75% of the loan amount be collected at the closing; this is usually funded through the loan but can actually be paid at closing in cash by the borrower. The annual mortgage insurance is up to 1.35% (higher for loan amounts over $625,500) of the loan amount and is paid monthly. There are some exemptions to this; FHA streamline refinances of loans that were endorsed prior to May 31st 2009 have an up-front MI of .001% and an annual MI of .55%.
FHA Lending Limits:
Cornerstone has extensive FHA experience and carried a 'mini-Eagle' designation until the program was dissolved in 2010. Please call or email for detailed information specific to your requirements.