What is an FHA Loan?
The Federal Housing Administration (FHA) was established in 1934 to improve housing standards and conditions and to provide an adequate home financing system through insurance of mortgages. Families that would otherwise be excluded from the housing market were finally able to buy the homes of their dreams under this program.
An FHA loan allows you to buy a house with as little as 3.5% down, instead of the higher percentages required to secure many conventional loans. Taking advantage of the FHA loan program is a great way for first time buyers, or anyone with a shortage of down payment funds, to buy a home.
The FHA does not make home loans--it insures them. If a home buyer defaults, the lender is paid from the insurance fund. This is a perfect mortgage solution for those starting out or those having a tough time qualifying for conventional loans.
An FHA insured loan is a US Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. To obtain mortgage insurance from the Federal Housing Administration, an upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the base loan amount at closing is required, and is normally financed into the total loan amount by the lender and paid to FHA on the borrower's behalf. There is also a monthly mortgage insurance premium (MIP) which varies based on the amortization term and loan-to-value ratio.
The FHA does not make loans. Rather, it insures loans made by private lenders, like 7th Level Mortgage. The first step in obtaining an FHA loan is to contact several lenders and/or mortgage brokers such as 7th Level Mortgage and ask them if they are FHA-Approved by the U.S. Department of Housing and Urban Development to originate FHA loans. As each lender sets its own rates and terms, comparison shopping is important in this market.
Second, the lender or broker ie. 7th Level Mortgage, assesses the prospective home buyer for risk. The analysis of one's debt-to-income ratio enables the buyer to know what type of home can be afforded based on monthly income and expenses and is one risk metric considered by the lender. Other factors, e.g. payment history on other debts, are considered and used to make decisions regarding eligibility and terms for a loan. FHA loans for buyers who don't meet a minimum 620 FICO score may be subject to higher mortgage rates.
Although FHA establishes minimum FHA qualifying criteria for this type of loan, each lender that offers FHA financing may have stricter criteria or overlays. Not all lenders offer the same approval criteria so it is important to make sure you are dealing with a lender like 7th Level Mortgage, LLC. We do NOT restrict FHA credit criteria nor do we impose any overlays.
For example, FHA will allow a borrower to qualify with a 55% total debt to income ratio. Most lenders have tightened their guidelines and will not approve borrowers with more than a 50% debt to income ratio. At 7th Level Mortgage, LLC, we follow FHA guidelines and give homeowners every opportunity to qualify with no restrictions or overlays to the program.
What is a VA Loan?
The VA Loan began in 1944 through the original Servicemen's Readjustment Act, also known as the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt and provided veterans with a federally guaranteed home with no down payment. This feature was designed to provide housing and assistance for veterans and their families, and the dream of home ownership became a reality for millions of veterans. VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.
Who is eligible for a VA Loan?
Wartime/Conflict Veterans who were not dishonorably discharged, and served at least 90 days:
World War II - September 16, 1940 to July 25, 1947
Korean Conflict - June 27, 1950 to January 31, 1955
Vietnam Era - August 5, 1964 to May 7, 1975
Persian Gulf War - Check with VA regional office for specific eligibility.
Afghanistan and Iraq - Check the VA's Web site for eligibility guidelines for current service in Afghanistan and Iraq.
Reserves and National Guard
Members who have completed six years of service and have been honorably discharged (or are still serving) may be eligible for a VA loan. Contact your regional VA office for more details.
USDA Loan Purchase Option
USDA Rural Development home mortgage loans are specifically designed to help low to moderate income households and first time home buyers purchase homes in USDA eligible rural areas. 7th Level Mortgage offers USDA loans that can be used to purchase an existing home, build a new home from scratch, or make repairs or renovations to an existing USDA eligible rural property. These funds can also be used to improve water and sewage systems on your rural property, or even used to relocate a home altogether. USDA home loans are available in every state 7th Level Mortgage is licensed to do mortgage lending including NJ, PA, DE, NY, and FL. General eligibility guidelines for the USDA Loan programs are the same throughout every state, however each state decides which counties are eligible for the program based on income and population density. The good news is that if you are seeking a home mortgage loan from 7th Level Mortgage in one either NJ, PA, DE, NY, or FL, most counties in these states qualify!