FHA Loans are insured by the Federal Housing Administration. These loans offer an alternative for borrowers who need additional flexibility. Prospective buyers who struggle with their income, credit history or their ability to make a sizable down payment may consider an FHA loan a suitable option that provides them with a safer lending option.
The greater flexibility and broader underwriting standards permitted by the FHA allow home-ownership to be more accessible to a larger range of qualifying borrowers. these loans are particularly useful to first time home buyers.
Closing costs can sneak up on buyer, so it's best to do your research and assess all potential costs associated with your designed loan program. FHA loan closing costs generally include the price for an appraisal, a credit history report, title expenses, and other necessary costs. Sometimes, these costs can be covered by the seller or the lender through negotiations. A home seller may choose to cover a portion or all of the closing costs as part of the home’s price. There is also the possibility that the lender could include the closing costs can also be included in the overall loan amount. If this is done, a higher interest rate may apply to the loan. When in doubt, you can always ask your loan officer for more information and clarification.
FHA LOANS AT A GLANCE
- Generally easier to qualify for than conventional loans.
- Lower down payment requirements.
- Cannot exceed statutory loan limits.
- Learn more about FHA loans. (Department of Housing and Urban Development)
OBTAINING MORTGAGE INSURANCE
FHA loans will typically require the borrower to obtain mortgage insurance. Securing Mortgage insurance is a relatively simple process with just two steps:
- Borrowers will be required to pay an initial premium of about 1.75 percent of the base loan amount. This payment can vary and is to be made upfront.
- There will be an annual premium payment requirement that is usually broken down into smaller and more manageable monthly installments. These monthly installment payments are included as part of the total monthly loan payment while the upfront premium is typically included in the loan. The total amount of the loan, as well as the years financed will determine the annual/monthly premium installment. The alternative to these payments can be considered for borrowers who are able to make a larger down payment. Placing a larger amount down on a property can help a borrower reduce, or avoid additional mortgage insurance fees. As the borrowers have personally assumed more of the risk with a larger down payment, the lender has the option to exercise more flexibility in their terms.
Wondering if you qualify to apply for an FHA loan? Contact us today to speak with a qualified member of our team. We can help you identify if you meet the loan requirements for an FHA loan and if this course of lending would be best to fit your needs.