Explanation of an FHA Loan

What is an FHA loan? Here is an explanation of what an FHA loan is for when you buy your first  home whether it is a Wixom home, Redford home, or a home in Livonia. As a metro Detroit realtor I like to explain things and write about things about Metro Detroit real estate, our local lakes, and mortgages to help people out.  I am one of those people that believe we should make the world a little better place one small step at a time.  Many people read the thousands of pages on the internet that I have written.  If it makes them more informed about their choices and lowers their stress level because they know what they are doing then I have done my good deed for the day.  I don't even know how many people I have helped over the years, but it a good feeling.  

An FHA loan is a loan by a bank that is insured by FHA and held to FHA guidelines.  It is a great loan for first time home buyers, buyers with bruised credit, and buyers with higher debt ratios. 

FHA underwriting guidelines allow home buyer to have only one year of clean credit. Many banks look past one year on how you pay your payments. FHA is looking at the last year carefully. FHA does require bankruptcies and foreclosures to be 2 to 3 years ago. But they will allow late payment over a year ago so long as the payment history is on time for the last year and you meet their minimum credit score. 

If you have been turned down for a conventional loan because of too much debit, then you might try to get an FHA loan. FHA allows higher debt ratios then conventional loans, so you may be able to qualify.  FHA loans are very popular with first time home buyers when they have minor issues such as high debt to income ratios and little credit.  FHA Loans help buyers that could not get a loan be able to get into a home.  Those are the pro's of buying a home with a FHA loan. 

The one con or negative of a FHA loan is that in a highly competitive sellers market like we have had in 2020 and 2021 FHA Loans are not highly regarded.  Home buyers are losing out in multiple bid situations if they are approved for an FHA loan.  You are probably wondering why that is.  Real estate agents usually rank offers in this order.

1. Cash offer - sellers and realtors like this because the deal can close quicker, and less likely to fall apart because there will be no appraisal or underwriting issues.
2. Conventional Loans - of course conventional loans with 20% or more down are liked by real estate agents and sellers.  Conventional loans allow borrowers to put as little as 3% down but many lenders impose a 5% minimum down payment
3. FHA loans - real estate agents place FHA loans further down the list because FHA loans allow buyers with bruised credit or little credit.  The guidelines allow buyers to have issues.  Sellers and listing agents know this and decide to go with a conventional loan because there is less likehood that the loan will fall apart because of issues with the loan and the borrower's financial abilities.
4. VA Loans usually fall below FHA loans because the underwriting guidelines and the home inspections are a little tougher. Plus there is an added cost to the sellers for a pet inspection.  

This is why a FHA loan may not be accepted by the listing agent and sellers.  If you can qualify for a conventional loan it is in your best interest to do so.  In this sellers market I am seeing fewer FHA loans. Here are three links to other articles on home buying.

• Basic home budget worksheet
• How much do need for a down payment?
• Be ready to buy a home

If you have questions about the loan process I have several good loan officers that I know at different lenders and banks, they would be glad to answer your questions. Send me an email and I will send you their contact information.  My email is yesmyrealtor@gmail.com 

If you need a good realtor to help you find a home with a FHA loan call me at 248-310-6239.  I work hard to get you a home.

 Check out Oakland County lakes by size for a quicker search.

Townsend Lake

Bullard Lake

 Here is a Just for Kids page that your kids are sure to love and to be able to explore some fun educational activities. 

Kellogg Lake

#fhaloans #ExplanationofanFHALoan #WhatisanFHALoan #WhocangetaFHALoan #HowDoesanFHALoanWork #HowdoyougetanFHALoan #whatcreditscoredoyouneedforFHAloan #fhaloans expained #howfhaloanswork