Uncategorized March 8, 2014

Crucial Facts About FHA Loans

Simply stated, a FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. Because of that insurance, lenders can – and do – offer FHJA loans at attractive interest rates and with less stringent and more flexible qualification requirements.
Some Facts all buyers should know about FHA Loans.
1) Less-than-perfect credit is ok – The FHA doesn’t mandate a minimum credit score, instead each borrowers creditworthiness is considered in context. Some leeway is allowed, even for borrowers who’ve filed for bankruptcy.
2) Minimum down payment is 3.5 percent – That is a fraction of the percentage typically required on most other loans. Borrowers can use their own savings to make the down payment, but other allowed sources of cash include a gift from a family member, or a grant from a state or local government down payment assistance program.
3) Closing costs may be covered – The FHA allows home sellers, builders, and lenders to pay some of the borrower’s closing costs, such as appraisal, credit report, or title expenses. Lenders may charge a higher interest rate on the loan if they agree to pay closing costs.
4) Lenders must be FHA-approved. Because the FHA is not a lender, but rather an insurance fund, borrowers need to get their loan through an FHA-approved lender. Not all FHA-approved lenders offers the same interest rate and costs – even on the same FHA loan. Borrowers should shop around for their lender.
5) Mortgage insurance is a must – Two mortgage insurance premiums are required on all FHA loans. The upfront premium is 2.25 percent of the loan amount, and the annual premium is 0.55 percent of the loan amount. The upfront premium can be financed as part of the loan amount. The annual premium is wrapped into each months mortgage payment.
6) Extra cash is available for repairs – The FHA has a special loan product for borrowers who need extra cash to make repairs to their homes. This 203(k) loan is based on the projected value of the home after the repairs are completed instead of the appraised value at time of sale. Up to $35,000 is available to borrowers to finance non-structural repairs.
7) Financial hardship relief is allowed – FHA insurance isn’t intended to be an easy out for borrowers who feel unhappy about their mortgage payments. Loan servicers can offer some relief to borrowers who have an FHA-insured loan and have suffered a serious financial hardship and are struggling to make their payments.