FHA loans: Everything you need to know

FALLBROOK – Most people obtain a home through financing. You’re probably already familiar with some common types of home loans such as conventional financing through banks and veteran’s loans for active and retired military members. Some potential homebuyers who are not able to meet the qualifications for certain loans may look into the Federal Housing Administration loan.

What is an FHA loan?

Downpayment and closing costs

Federal Housing Administration loans make homeownership more attainable with a smaller down payment. You can pay 3.5% down, compared to as low as a 5% down payment for conventional loans.

The terms of the loan may include the closing costs as well. The seller can pay up to 6% of the purchase price in closing costs.

Credit qualifications

The FHA also offers more lenient credit score guidelines. Currently and subject to change, the minimum credit score is 580 for a 3.5% down payment, 500 below with a 10% down payment. It would be a challenge to obtain a home loan through conventional financing when your credit score is below 620. You also only need one credit score, three nontraditional accounts such as rent, utilities and auto insurance.

Mortgage rates

Qualified homeowners can enjoy better rates than conventional for low-credit borrowers. As of this writing, the average 30-year FHA rate is 3.94% APR while a 620 FICO conventional 30-year mortgage is at 4.414 % APR.

Finance repairs on a fixer-upper

The FHA also has a program called FHA 203(k) Rehabilitation Loan or renovation loan, that enables homebuyers to take the financial burden out of renovating a home.

Mortgage insurance premium

A downside is that mortgage insurance is more expensive and non-cancelable. You have to pay for it for the life of the loan at 0.85 monthly factor (compared to 0.35 monthly factor in conventional) There is also a 1.75% upfront fee financed into the loan amount. However, you may refinance into conventional to drop the MIP.

Income, loan, and property restrictions

You may purchase a primary residence anywhere in the U.S. Condos may not be approved. The home also has to be occupied by the owner. It cannot be obtained as a vacation home or a real estate investment.

There are no income limits, however there may be loan limits based on region. Check with your local office to learn more.

The FHA loan makes the American dream possible for many. We hope you find the information above helpful. If you have any questions about FHA loans and other home loan options, feel free to reach out to our agents at Broadpoint Properties.

This article first appeared on Broadpoint Properties’ website, https://servingsandiegocounty.com.

Submitted by Elisabeth Hartig Lentulo, broker associate, who can be reached at 760-532-1057, [email protected] or http://www.ehlentulo.com. CalBRE #01904564

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