Preparing for a Smooth FHA Loan Application Process
If you are considering buying a home on Kauai an FHA loan may provide you with that opportunity. With reasonable rates and terms, FHA loans make it easy to become a home owner once you meet the eligibility requirements and follow the proper steps.
Here is an overview of the FHA loan process and how you can use an FHA loan to purchase a home on the Garden Island.
What will I need to apply for an FHA loan?
To apply for an FHA loan you will need to provide your address for the last two years, your social security number, your employment history for the last two years, and your current gross monthly salary. You will also need to provide your savings and checking account information as well as information on any loans you have outstanding.
Lastly you need to provide information about any real estate you own, an estimated value of your personal property, your W-2 forms and check stubs from the last two years and your personal tax returns for the last two years.
People who are self-employed need to provide a business balance sheet and current income statement. Veterans also need to provide a Certificate of Eligibility and DD-214. You will also have to pay the fees to get a credit report and to have the property appraised.
What are the basic requirements for an FHA loan?
Eligibility for an FHA home loan requires that the applicant be a lawful resident of the United States and of legal age to be able to sign a mortgage. You must certify that you intend to live in the home that is purchased with the FHA mortgage. Credit score, job history and payment history are also factors in an FHA application.
How much financing is available with an FHA loan?
A qualified borrower may be eligible for up to 96.5% financing with an FHA loan.
Is it possible that I may earn too much money to qualify for an FHA loan?
No, however there are some income limits for applicants who also want to apply for down payment assistance or other FHA programs which are designed to help applicants afford the cost of owning a new home.
Is it possible that I may earn too little money for an FHA loan?
Yes. Applicants for FHA loans must earn enough income to qualify for the monthly mortgage payment that will be due as well as money for typical home owner costs including utilities and other expenses.
Is mortgage insurance required with FHA loans?
Upfront mortgage insurance (a government guarantee) is required with FHA loans, and the mortgage insurance premium may be financed into the mortgage.
Annual mortgage insurance premiums for mortgages with terms of more than 15 years are cancelled when the loan to value ratio reaches 78% if the mortgagor has paid the yearly premium for at least five years.
If the term is 15 years or less with a loan to value ratio of at least 90% then the annual premium will be cancelled regardless of how long the mortgagor paid the annual premium. No annual mortgage insurance premium is charged if the loan to value ratio is less than 90% on a mortgage with a term of 15 years or less.
Can I purchase a fixer-upper home with an FHA loan?
The Federal Housing Administration has a program known as HUD 203(k) that allows qualified borrowers to purchase a fixer-upper home and include the costs of improvements and repairs in the FHA loan.
How are my debts, lines of credit and income analyzed for my FHA loan application?
The FHA and the bank will analyze your open lines of credit, current debts and approved sources of regular income to calculate your debt-to-income ratio. You will be allowed to use 29% of your income toward your housing costs and 41% toward your long-term debt and housing expenses.
This is more lenient than conventional loans, and the FHA also provides some flexibility in this area in certain situations such as if you have a large down payment or if your net worth or cash reserves justify an exception.
The debt-to-income ratio requirements may also be changed if you anticipate lower monthly housing expenses in the future, or if you are applying for less than the maximum FHA loan terms. A discussion with an FHA loan officer will help you find out if you qualify for less stringent debt-to-income ratio requirements.
What other costs do I need to plan for when buying a Kauai home with an FHA loan?
Kauai home buyers using an FHA loan will need to pay various fees and costs such as closing costs and mortgage insurance premiums. Find out about these costs when you apply for your FHA loan so there are no surprises.
What is the minimum credit score I will need to qualify for an FHA loan?
This requirement changes from time to time and also depends upon what FHA loan product you are applying for, but as of September, 2010, generally speaking, an applicant should have a credit score of at least 580.
If your credit score is between 500 and 579 then you will be limited to a 90% loan-to-value ratio, and if the score is lower than 500 you will not be eligible. Exceptions are made for disaster victims, and there are also exceptions for people with insufficient credit or non-traditional credit history if they meet certain FHA requirements.
What if I don’t qualify for an FHA loan?
If it is determined that you are not eligible for an FHA loan you may be able to spend a year or two establishing a reliable payment history and repairing your credit to achieve a situation where you qualify for a loan. The FHA offers first time homebuyer counseling and credit counseling that can help you resolve these issues.
Kauai Realty Services and Vacation Accommodations
If you are considering buying a home on Kauai you can see some of the island’s best real estate deals by browsing through the Coldwell Banker Bali Hai Realty Kauai Real Estate Galleries, or you can use the Map-Based Kauai Home Search.
For the finest quality Kauai vacation rentals including luxury estates, condos, cottages and beach villas, see our Kauai Vacation Rental Galleries or use our new Map-Based Vacation Rental Search feature.
Also please feel free to give us a call. The Bali Hai Realty staff will be happy to help you find the perfect Kauai vacation rental or assist you in the process of buying or selling a Kauai home.