FHA Loans for Buyers of Issaquah Homes

Buyers of homes in Issaquah may qualify for FHA home loans when other loan options are unavailable.  The FHA (Federal Housing Administration) is a government entity that was created in 1934 to encourage home ownership during the Great Depression.  The FHA does not actually make mortgage loans, they insure the loans that a bank or mortgage company create.

There are several advantages of an FHA mortgage loan over a conventional loan. A local Issaquah mortgage specialist or broker can help explain the details of an FHA guaranteed loan and how they differ from a conventional loan. Below is a summary of  general guidelines for an FHA insured loan.. FHA Loans for Buyers of Issaquah Homes

Have Employment

To be considered for an FHA guaranteed loan, the borrower should have had two years of steady employment with an employer who provided an annual wage statement or Form W-2. Preferably, employment would be with the same employer with the wages and/or salary consistent or rising over the two year period. Though self-employed borrowers are not specifically excluded from an FHA loan, additional documentation and/or a longer earnings history may be required.

Though there are no minimum or maximum salary amounts, the borrowers new estimated mortgage payment (principal, interest, property taxes and insurance) should not be more than 30% of the borrowers gross (before taxes and deductions) income. For example, if the borrower makes $4,000 per month before taxes, the mortgage payment should not be more than $1,200 per month ($4,000 X 0.30) However, there might be certain lenders which allow a higher ratio than 30%

Have an Average to Above Average Credit History

For consideration of an FHA guaranteed loan, a borrower should have a FICO® (*) credit score of 620 or higher and have no more than two thirty-day late payments (of any kind) during the last two years, (however, there are certain banks that may accept lower credit scores but may require a greater down payment.) Any bankruptcies must be at least two years old and any home foreclosures must be at least three years old. Credit history also needs to be very good or excellent after a bankruptcy or home foreclosure.

* - FICO® is a registered trademark of Fair Isaac Corporation. More information can be found on the FICO website.

Have Money for a Down Payment

For all potential home buyers with a credit score over 620, FHA loans require at least 3.5% of the sales price in cash for closing costs and the down payment.  However, the home buyer can use gifts from family, funds from local, state or government agencies, or other sources for the down payment. For example, if the sales price of the home is $100,000, the home buyer must have at least $3,500 in cash for the closing.

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Once a home buyer meets the qualifications for an FHA insured loan, a real estate agent will assist in locating a home in the Issaquah real estate market which conforms to the FHA guidelines for FHA insured homes. These guidelines for Issaquah, Washington include;

- A maximum loan amount of $506,000 for a single family home in Issaquah. Note, however, that this is the loan amount, not the price of the home. The price of the home would be the loan amount plus the cash for the down payment. For example, if a home buyer puts down the minimum 3.5%, down payment, the price of the home would be about $524,400 (price of the home $524,400 minus the 3.5% down payment of $18,354 equals $506,046.) Though the maximum FHA loan amount is $506,000 in Issaquah, the amounts differ in other areas of the United States. A complete list can be found here.

- The buyer must live in the home.  FHA Guidelines require that the new owner of the property live in the home. This requirement is to discourage investors or others who may try and use the FHA loan program to purchase properties and then rent or lease them to others. In addition to the purchase of single family homes, FHA guidelines also allow the purchase of condos, planned unit developments, manufactured homes, and 1-4 family residences, in which the borrower intends to occupy one part of the multi-unit residence. Note that there are higher maximum loan limits for houses with more than unit, such as a duplex or four-plex.

- The FHA requires the buyer to pay for the FHA insurance. The FHA charges the home buyer insurance premiums (insurance which covers any future defaults by the borrower.) Borrowers pay an up-front fee of 1% of the amount of the loan, as well as an annual fee of 1.15%. However, in many cases, the upfront premium can be rolled into the loan amount and the annual fee can be added to the monthly escrow mortgage payment.

- There is no pre-payment penalty for an FHA loan. Prepayment penalties are not allowed under FHA guidelines.

Obtaining an FHA insured loan begins by contacting a mortgage loan officer or broker. After pre-approval of the FHA loan, the home buyer should then contact an Issaquah real estate agent to begin the search for a homes in the Issaquah real estate market.

 

 

About

Danny Evatt, REALTOR® is a Real Estate Agent with Coldwell Banker Danforth, serving the communities of Issaquah, Sammamish, Snoqualmie, North Bend & Fall City.