The United States Federal Housing Administration Department (FHA) has been helping American citizens afford new houses and has helped people realize the dream of homeownership since 1934. The FHA has done this by extending benefits to low and middle-income families who would otherwise not be able to qualify for a conventional loan. There are requirements for FHA loans, but they are not as strict as qualifications for a conventional loan, so even if you have low or no credit, it is still possible to qualify for an FHA insured loan.
The FHA, or Federal Housing Administration, provides mortgage insurance on loans made by FHA-approved lenders. The FHA insures these loans on single and multi-family homes in the United States and its territories. It is the largest insurer of residential mortgages in the world, insuring tens of millions of properties since it was created.
Here are some of the requirements and guidelines you will need to be aware of before you get started on the loan process:
All FHA loans require a credit check on the borrower. Your credit score is a basic history of your financial past, and an indicator of how well you will be able to make payments in the future. While conventional loans require that you have a strong score to qualify for a loan, the FHA is much more relaxed. Even if you don’t have a high credit score or no credit, it is still possible to qualify for a loan if you have a co-signor who has credit, even if they aren’t planning to live in the home. In the case of a first time homebuyer, the FHA will allow a blood relative, such as a parent, to co-sign for the loan without requiring them to reside in the home with the first time homebuyer. This is called a Non Owner Occupied Co-Borrower. In general, A 640 FICO credit score is required to obtain an FHA approval. Very few lenders will fund FHA loans for buyers without a minimum 620 FICO score. For below 620 FICO scores, interest rates will be higher.
When you apply for an FHA loan, your income level will be taken into account. Even though the Federal Housing Administration is there to help low and middle income families, they need to know that your income will be sufficient to afford your monthly and annual payments.
Debt To Income Ratio Requirements
To prevent homeowners from getting into a home they can’t afford, the FHA requires borrowers and/or their spouse to qualify according to set debt to income ratios. Your debt to income ratio takes into consideration your monthly or annual salary, and then subtracts your debts such as car payments, tuition, credit cards, and other expenses. This number is a true representation of how much money you have left at the end of each month and how much you are able to afford for monthly mortgage payments. There are two ratios to pay attention to. The two ratios are as follows:
1) Mortgage Payment Expense To Effective Income – Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners’ dues, etc.). You then take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 29%
2) Total Fixed Payment To Effective Income – Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners’ dues, etc.) and all monthly recurring revolving and installment debt (personal loans, car loans, student loans, credit cards, etc.). You then take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%.
Maximum FHA Loan Amount and Financing
The maximum loan amount under today’s FHA Loan Requirements is determined based on the metropolitan area or county in which you live. The highest maximum FHA mortgage loan right now is $729,750 and the lowest FHA lender maximum amount available in any county is $271,050.
Depending on the state where the property is located, FHA loan requirements state that the maximum financing will be 97.75% of the lower of the purchase price, the appraised value of the home or the amount you are refinancing plus closing costs. If you are refinancing and taking cash out, the loan amount will be limited to 85% of the home’s appraised value.
Mortgage Insurance Premium (MIP)
To obtain mortgage insurance from the Federal Housing Administration, a mortgage insurance premium equal to a percentage of the loan amount at closing is required, and is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.
Get Started Today
If you’re not sure if you can meet the standards for an FHA loan, or have any questions about the FHA loan approval process, you can contact a lender in your area who can help you with any inquiries you have.
SBA 7(a) loans are the most common type of SBA loan and one of the most popular business loans in general. Like all SBA loans these funds are secured through a bank, credit union or finance company & the SBA insures a percentage of the loan amount. Though very common these loans still come with complicated funding parameters you have to successfully navigate so proper packaging is essential. Also at issue is the tolerance specific funding sources have for different types of loans, different loan amounts & different industries they focus on. Going to the right funding source with the right package is often the difference between funding and a rejected application. Details of the SBA 7(a) include:
Loan amounts: $25,000 to $5,000,000
Term: Working Capital up to 7 years, Equipment up to 10 years (or useful life), Real Estate up to 25 years
Rates: loans up to 7 years Prime plus 2.25%, loans longer than 7 years Prime plus 2.75%
Collateral: funding source will collateralize all business assets & real estate
Underwriting Requirements: Personal Guarantee of all owners with 20% or greater equity, adequate business or personal assets to secure the loan, Hazard Insurance
SBA guarantee: less than $150,000 loan amount – 85%, greater than $150,000 loan amount – 75%
Use of Proceeds: include buying real estate, construction, renovation or leasehold improvements; buying furniture, fixtures, machinery, and equipment; buying inventory; and working capital. In some cases buying a partner out, acquisition financing & recapitalization are allowed.
Disallowed uses of proceeds: buying investment real estate, paying back owners, paying delinquent taxes,
Non eligible businesses: most businesses qualify for the 7(a) those who don’t include: gambling, speculation based, pyramid sales organizations, illegal activities, non profits, loan packaging, lending companies, rare coins & stamp dealers, charitable & religious organizations.
Profile of eligible company: Operate for a profit, doing business in the United States, have reasonable owner equity to invest, have exhausted other financing options (including owners personal assets) Business tangible net worth less than 15 million with average net income less than 5 million over the past two years.
SBA 7(a) packaging requirements – these are the general requirements banks & other funding sources will have their own additional requirements as well:
SBA application & related documents
Personal Financial Statement & history of all owners with 20% or more equity
Executive Summary: who they are, their business background, the nature of their business, the amount and purpose of their loan request, their requested terms of repayment, how the funds will benefit their business, and how they will repay the loan.
Business Profile: type of business, location, product or services, history, annual sales, number of employees, proposed future operations, competition, customers, and suppliers.
Management: resume for each owner & key management member
SBA loan request form: purpose, amount & type of loan
Loan repayment statement (cash flow schedule, budgets, source & time)
Collateral statement to secure loan (all loans will require two repayment sources cash flow from operations & collateral)
Personal financial statements & past 3 years tax returns for all owners with 20% or more equity
Past 3 years & interim complete business financial statements (balance sheet, income statement, cash flow schedule, AR & AP aging schedule etc.) using GAAP & SBA approved formatting (the strength & accuracy of these statements carries the greatest weight in approval)
Pro Forma showing proposed use of funds & impact on business
Projected P&L: at least one year, clearly explained & documented to support all assumptions
Corporate documents: articles, leases, agreements, licenses, plans, contracts, letters of intent, letters of reference, partnership agreements etc.
Getting a bank loan is not much different than getting an insurance policy. There is an underwriting process that takes place for both transactions. Most people are very careful when trying to get a loan to make sure they have everything in order and complete for their submission. Unfortunately, when it comes to procuring an insurance policy most people approach that transaction in a haphazard manner. Using the same careful and complete presentation that you would use when you submit your documents to the bank in trying to secure a loan is almost the exact same process you should use when trying to get insurance proposals for your small business.
The three C’s of banking, character, credit, and cash are also applicable in the insurance underwriting process.
Your character can be manifested in many areas throughout the insurance underwriting process. If your company has a frequency and/or severity problem with regards to claims, losses, and lawsuits, that will affect an underwriter’s view of your character in the underwriting process. If your company has high employee turnover and/or poor employee morale this will also have a negative impact in the underwriting process and thus will have a negative impact on the pricing of your policies.
Just like in banking your credit score plays an important part of whether or not you will be able to secure a loan for your project. While it does vary by state most insurance carriers are running your credit score for both personal insurance and commercial insurance policies that you’re trying to secure. In regards to personal insurance, normally the insurance carriers do not have the ability to surcharge their policies for bad credit scores. Therefore they normally just will decline you as a risk that they are not willing to take on. On the commercial lines side, most of the carriers have the ability to surcharge their pricing other commercial policies based upon credit scores. They can either decline you or increase your pricing because of the perceived risk of your low credit scores.
Cash or cash equivalent is important in running any business. If in the underwriting process the carrier discovers negative cash flow’s or low or nonexistent cash reserves they typically will decline on issuing a commercial policy. The rationale comes from the under writing principle of that they do not want to create a moral hazard whereby the owner intentionally destroys insured properties in order to collect an insurance payout due to financial stress. The risk management tip of the day is that as you approach insurance carriers for proposals use the same process that you would use in obtaining a bank loan and you will have much greater success in your endeavors.
If your car insurance is due for renewal and you are considering buying another policy then this article will provide you with important facts that you should know about. Car insurance policies are getting increasingly expensive and you should do all that you can to reduce your costs. How much you have to pay for your car insurance is dictated by a variety of factors as they apply to you and your vehicle.
In this article we will examine coverage limits, your age, gender and marital status, your location and insuring other household members. All of these factors will have a great influence on how much you will have to pay for your policy.
Coverage limits are generally dictated by the price that you are willing to pay for your insurance. A higher level of coverage will generally result in higher premiums. The best way to find a good value policy is to comparison shop. Nowadays it is generally accepted that the best way to do this is by using a car insurance comparison website.
Your age, gender and marital status will have a great effect on the auto insurance rates that you are offered. Insurers rate drivers using a variety of criteria, if you are a young single male driver you will usually have to pay higher rates. If you are a middle-aged female married driver then your rates will be lower. Insurers calculate the best car insurance rates for you by comparing levels of risk. Those groups which are statistically more likely to be involved in an accident have to pay correspondingly higher rates.
Location plays an important part in deciding how much your premiums will cost. Drivers who live in an urban environment will usually pay more than those from a rural area. This is because drivers who live in cities and heavily populated areas are more likely to be involved in an accident, or to have their car stolen or vandalized. Insurers generally offer better rates if you’re able to demonstrate that you keep your vehicle in a garage at night. You may also be able to improve the security arrangements of your automobile by fitting an alarm, immobilizer and steering wheel lock.
Insuring other household members will have an influence on the cost of your policy and the best car insurance rates that you offered. If you have teenage family members living with you and they are added to your policy, then your costs will increase. This may still work out cheaper than if your teenage driver were to have a separate policy in their own name.
In conclusion, there are a variety of different factors which can affect your ability to be offered the best insurance rates. Some of these are coverage limits, how old you are, whether you are male or female and whether you are married or single. Your rates will also be affected by the area where you live and whether other household members are included in your policy.