May 5, 2023
Are you considering buying a home with an FHA mortgage or refinancing a current mortgage loan? If you are new to either process or if it’s been a long time since you purchased your first home, there may be terms and definitions you need to re-familiarize yourself with.
Here are some basics you should know:
FHA single-family home loans are what most borrowers are after when they want an FHA mortgage to purchase a home, townhome, condo, manufactured home, etc.
The idea is basically that the home purchased with the FHA loan is an owner-occupied property that is primarily residential in nature and where at least one of the borrowers or co-borrowers will live once the loan is closed.
Occupancy requirements refer to the FHA policy that single-family homes must be occupied by at least one borrower within a reasonable time after closing, usually 60 days or less.
The occupancy requirement is in place to prevent FHA single-family mortgage loans from being used to purchase investment properties.
Minimum required investment is a term in FHA loan application documents, lender paperwork, etc. It refers to the minimum down payment needed to qualify for the FHA loan.
The Minimum required investment is separate from all other fees, expenses, and costs of the loan and must come from approved sources.
The cost of an appraisal or other fees is NOT considered part of the down payment/minimum required investment. Factors such as FICO scores, etc., can affect your down payment amount.
Mortgage Insurance Premiums (MIP) are part of your FHA loan monthly mortgage payment. These premiums are required as part of the FHA loan and are not associated with private mortgage insurance.
Some confuse MIP with private mortgage insurance, which is sometimes referred to as PMI, but private mortgage insurance is NOT the same as the FHA’s required mortgage insurance premium.
The FHA MIP is separate from the FHA Up Front Mortgage Insurance Premium, which is part of the borrower’s closing costs. Depending on the circumstances, this may be included in the loan amount, but the borrower must either pay or finance the entire amount.
Base loan amount is defined by the FHA official site (www.FHA.gov) as follows: “The Base Loan Amount is the mortgage amount prior to the addition of any financed Upfront Mortgage Insurance Premium (UFMIP).”
Installment loans are often mentioned in FHA loan documents, especially when it comes time for a credit check by the lender.
Your loan officer wants to know what kinds of debt you have, including revolving credit (credit cards) and other types of monthly recurring debt. According to FHA.gov, “Installment Loans refer to loans, not secured by real estate, that require the periodic payment of principal and interest.”
One area that some borrowers may not be aware of for those who are applying for an FHA mortgage for a primary residence but who also have previously purchased a timeshare, FHA loan rules are specific about the nature of that type of debt:
“A loan secured by an interest in a timeshare must be considered an Installment Loan.”
That’s important to know in the planning stages of your FHA home loan or FHA cash-out refinance loan.