• FHA Loans

  • The Federal Housing Administration, known to many as the “FHA”, has been helping people become homeowners since its inception in 1934. It is a government agency that provides mortgage insurance on loans made by FHA approved lenders throughout the United States. FHA loans are easier to qualify for than a conventional mortgage however  borrowers typically have to submit more documentation and pay for mortgage insurance along with their mortgage payment. Despite these added requirements however, FHA loans are a great option for borrowers who would otherwise not be able to purchase a home.

    What is an FHA Loan?

    Unlike conventional loans, FHA loans are government insured, protecting lenders against borrowers who may default. This allows lenders to relax requirements for borrowers with less than ideal credit however there is a caveat: borrowers  must pay mortgage insurance on the loan. At first glance paying for mortgage insurance may seem unappealing but without it, lenders would not even consider to finance loan applications from borrowers with rocky credit histories. Thus FHA loans offer home buyers a great alternative to conventional loans.

    Requirements

    FHA loans are one of the easiest types of mortgages to qualify for. It requires a low down payment (as low as 3.5% down) and you don't need to have the best credit to score to meet the requirements. Your credit can be as low as 500 to qualify. Federal Housing Administration (FHA) - which is part of the United States Department of Housing and Urban Development (HUD) - insures the loan, so your lender can offer you a better deal.

    In an FHA mortgage the customer must put at least 3.5% of the sales price into the transaction. Some of this money may be used for down payment and the rest for closing costs . Keep in mind, however,that the total cost to close on an FHA is commonly over the 3.5%. With the down payment, closing costs, money to establish escrows for taxes and insurance plus interest to finish out the month of closing, the total costs can be closer to 6 or 8% of the sales price.

    The interest rate that you select will also have a bearing on the total costs. If you select a lower rate so that you can reduce your payment, you may end up paying additional money towards "points". At the same time if you are comfortable with a slightly higher payment you may find a lender that is willing to reduce the costs to close in favor of a higher interest rate. FHA allows the borrower to get the funds necessary to close from several sources. They include such areas as personal savings, gifts, grants, loans from retirement accounts and seller contributions.

    Benefits

    As we have mentioned FHA loans have very tangible benefits for borrowers, the most notable being the flexible credit requirements. Moreover, FHA loans can be used to buy a home, fix it up, and include all the costs in one loan or include the cost of energy improvements into your loan. Low down payments and relatively low closing costs couple together to make this type of loan very appealing for all types of home buyers.

    If you are interested in finding out if an FHA loan is right for you, please contact us or fill out our pre-approval form so one of our experienced loan officers can help you evaluate your loan options.