Located just north of the Dallas-Ft. Worth metroplex is Denton, the county seat of Denton County. For those who want or need to buy a home in Denton with a mortgage program asking for as little down as possible, the FHA loan just might be the best choice. The FHA home loan program was introduced back in 1934 as part of Congress’ attempt to jump-start the economy with the implementation of the National Housing Act of 1934. Prior to the introduction of this iconic mortgage program, lending guidelines were so varied that a borrower could be declined at one bank yet approved at another under the very same circumstances. As well, banks would ask for down payments as high as 50% or even more and the loan term would be anywhere from three to five years. This of course kept many away from homeownership. Yet the FHA loan changed all that.
Today, the minimum down payment required for an FHA loan approval is just 3.5% of the sales price of the home located in Denton or anywhere in Denton County. For instance, say a home is listed for sale at $200,000. The down payment requirement today for an FHA loan is 3.5% of that amount, or $7,000. Because FHA down payments are so low, they are popular with first time homebuyers although FHA loans can be used by anyone, regardless of any previous homeowner status. Down payments and closing costs must come from accounts owned by the borrowers or can come in part or all in the form of a financial gift from a relative or qualified non-profit agency. Comparatively, a 20% down payment for a conventional loan on a $200,000 sales price is $40,000. This of course is in addition to the necessary closing costs associated with an FHA home loan.
FHA loans also carry a government-backed guarantee. Should the lender ever be forced to foreclose when the borrowers default the lender is compensated for the loss. This guarantee is financed by two separate mortgage insurance policies paid for by the borrowers. There is an upfront mortgage insurance premium based upon the loan amount and rolled into the loan. In addition, there is an annual premium that is paid in monthly installments based upon the outstanding loan balance. As long as the approving lender used proper FHA approval guidelines and the loan ultimately is foreclosed upon, the lender is then compensated for the loss. Good new for buyers in 2017, FHA announced reduced mortgage insurance costs.
For those seeking an FHA loan and are self-employed, FHA guidelines as the borrowers to provide their two most recent filed and signed federal income tax returns, both personal and business. In addition, the self-employed borrower will be asked to provide a year-to-date profit and loss statements along with business and personal bank statements. Borrowers who are not self-employed will be asked to provide copies of their most recent pay check stubs covering a 30 day period along with the two most recent years’ W2 forms.
Credit requirements for FHA loans are less stringent compared to low-down payment conventional loans but lenders do ask for a minimum 620 credit score. When lenders accept an FHA application and pull a credit report from each of the three credit bureaus of Experian, Equifax and Transunion, they also request credit scores. Of these three scores, the lender will throw out the highest and lowest credit score and use the middle one. For applications with more than one borrower, the lender will typically use the lower of the two middle scores.
For those buying a home in Denton County and also are looking for a mortgage program asking for as little cash to close as possible, the FHA mortgage program just might be the ideal choice.
FHA also offers some great refinance options for home owners looking to lower their monthly mortgage expense.