Since 1934, the Federal Housing Administration (FHA), which is a part of the Department of Housing and Urban Development (HUD), has been helping people achieve the dream of homeownership. By offering mortgage insurance that protects lenders in the case of default, having less strict qualifications, and assisting with down payments and closing costs, the FHA has been able to help millions secure housing through approved lenders like us.

Starting on January 19th, 2021, The Federal Housing Administration (FHA) announced that it is permitting DACA Individuals to be eligible for FHA Mortgage Loans.

DACA individuals, also known as dreamers, are those who are undocumented but were brought into the U.S. before their 16th birthday and were under the age of 31 when the classification was created in 2012. Neighborhood Loans is excited to be a part of this milestone in the industry and we are looking forward to helping as many people as we can.

They were previously being denied due to verbiage in the FHA Housing handbook that stated, “Non-US Citizens without lawful residency in the U.S. are not eligible for FHA-insured mortgages. The term lawful residency pre-dates DACA and thus did not anticipate a situation in which a borrower might not have entered the country legally, but nevertheless be considered lawfully present.” Going forward, there shouldn’t be any issues when it comes to lawful residency for DACA borrowers looking to secure financing.

How does an FHA Loan Work? 

FHA Loans are sponsored through the government and provide a special guarantee to lenders. If an FHA Borrower defaults or fails to repay the loan, the FHA will reimburse the lender for the remaining principal on the home. This guarantee allows lenders to offer appealing mortgage terms to those who are looking to secure funding with a small down payment or average credit score.

Besides this unique feature, the FHA loan process will be the same as any other mortgage loan. You will apply and get pre-approved, find a home, provided all the necessary information and documents to your lender, do the final checks, and sign all the closing documents.

Benefits of FHA Mortgage Programs

The most common reason to secure funding with an FHA mortgage is the low down payment requirement. Compared to a Conventional mortgage loan that requires a 20% down payment, FHA mortgage loans only require a minimum down payment of 3.5%! This opens the doors of homeownership to many of those who are hesitant to deplete their savings for a down payment.

If you’re dealing with a lot of debt, like student loans, don’t worry – you can still secure financing with an FHA Loan. With FHA programs, your credit score can determine the minimum down payment amount, but it won’t be greater than 10% with below average scores. The credit score requirements will vary depending on the lender you are working with – but these programs are designed to approve borrowers with an average credit score.

Private Mortgage Insurance

When you make a down payment below 20%, you will be required to have Private Mortgage Insurance (PMI) on top of your typical homeowners’ insurance. PMI funds are used to provide the lender a guarantee in case a borrower defaults. PMI will be factored into your monthly payment and will vary in cost based on the value of your home. It should also be similar in price to your regular homeowners’ policy.

Keep in mind, the PMI attached to your mortgage can be canceled once your loan-to-value ratio reaches 80%. When you build 20% equity in your home, you can contact the lender or service of your loan to have it canceled.

Interest Rates

To find the best FHA interest rate, you will have to research and compare lenders to see who can offer the lowest. Interest rates can fluctuate daily and it is important to keep open communication with your loan officer to get locked in at the lowest rate.

FHA interest rates are also determined by a few personal factors, such as your credit score, debt-to-income ratio, and down payment amount.

As an FHA approved lender, Neighborhood Loans truly believes in homeownership for all. We are motivated by being able to make our clients’ dreams come true. If you have any questions about eligibility or would like to start the homebuying process, reach out to us today!