Having a hefty down payment to put toward a home can daunting, and even a deal-killer for hopeful first-time home-buyers. The FHA loan is designed to help ease that burden. This type of loan is insured by the Federal Housing Administration, an agency within the U.S. Department of Housing and Urban Development (HUD). It’s an excellent option for ending rental drain and building equity.
The FHA provides mortgage insurance on loans made by FHA-approved lenders, protecting them against losses resulting from mortgage defaults. This makes FHA mortgage loans attractive to lenders, while the lower interest rates, down payment requirements – often only 3.5% – and more flexible qualification options make them attractive, especially for first-time home-buyers, or those with imperfect credit history.
FHA LOAN REQUIREMENTS
To see if you qualify, begin your FHA Loan Application here. Some of the information you will be asked to provide once you apply includes letters of explanation for previous bankruptcy, foreclosure or short sale, employment / proof of income (like tax returns and paycheck stubs or disability award letters) and residence addresses, all for the past two years, and, of course, your credit score.
If your credit score is greater than 580, you can put as little as 3.5% down on a home purchase. If your score is between 500 and 579, generally 10% is required as a down payment. FHA mortgage rates are affected by credit score, down payment, loan amount, property location / type, length of loan, and points (1 point = 1% of mortgage amount, paid to the lender to lower the interest rate).
Once you are pre-approved for a loan, house-hunting can commence with confidence, since you have the lender approval letter in hand and you and your real estate agent know how much home you can afford.
If you happen to find a home that you’d like to purchase, but requires some renovation, the FHA 203(k) program may work for you. The 203(k) allows home-buyers to finance up to $35,000 toward improvements along with the purchase. This can include things such as replacing the roof or floors, making energy conservation improvements, modernizing the home, or making it accessible those with disabilities. Your loan officer can help with the application.
With FHA loans, borrowers are required to pay two mortgage insurance premiums (MIPs) – upfront and annual. The upfront MIP is 1.75% of the loan amount, but can be financed as part of the loan. The annual MIP, paid for monthly by the lender to HUD, varies by loan amount, length of the loan (15 or 30 years), and loan-to-value ratio. For example, on a $200,000 home with a 30-year mortgage, with 3.5% down payment, the monthly MIP will be $136.71. It’ll be included in the monthly mortgage statement. Even a conventional loan requires mortgage insurance if the down payment is less than 20%.
The FHA loan is perfect for first-time homebuyers or those with past credit problems. Federal Home Loan Centers can start you on the road to home ownership, and will stay with you throughout the process, answering questions and working with you until you find that perfect home. Call 877-432-5626 option 2 to begin.