The Nitty Gritty on FHA Loans.

    Finding the perfect home is just the first step on the road to home ownership. If you don’t have a huge down payment to put down, you might qualify for an FHA loan. Here’s some info on FHA and how it works:

    What is it and who for?: An FHA mortgage loan is a loan that is insured by The Federal Housing Administration (FHA). FHA loans protect lenders against potential losses as a result of a homeowner defaulting on their mortgage loan. The FHA home loan program is great for home buyers who might not have the usual 20% down payment saved up or the best credit score. Buyers who qualify for a loan with the FHA can buy a home with a down payment as little as 3% down.

    Is FHA a bank too? NOOOOOOO. The FHA is a US government agency created in the 30’s to help stimulate the housing market. Buyers who use qualify for FHA will go through an approved lender.. FHA is more like insurance.

    Pros of FHA: Even if you don’t have a down payment, you  can still get a loan! Most conventional loans require a down payment of 10%-20% of the purchase price. A minimum down payment for an FHA loan can be a lot less and coincide with the buyers credit score. Buyers with a credit score of 580 or higher can put down 3%, if your score is lower, you can still qualify.. but the down payment will go up a bit.

    Closing Costs: A big pro of an FHA loan is that it requires the sellers or lender to cover the closing costs, which can be a huge expense. This is great for buyers who don’t have cash ready to pull out. You’ll need to include that you want the seller to cover the closing costs in your offer, but your Realtor will handle that for you.

    One cost with FHA: When using an FHA loan, buyers will pay an additional fee called a mortgage insurance premium. This protects the lender against potential loss as a result of a default on the mortgage. There are two types of insurance premiums. The 1st occurs up front and is 1.75% of the loan.. regardless of your credit score. The second premium is an annual premium paid alongside your mortgage payment. Once a buyer has enough equity in the home, the annual mortgage insurance premium can be done away with.

    Qualifying: Go talk to a lender and ask them to walk you though specific requirements. There is no age restriction and you don’t have to be a first time home buyer.

    How to choose a lender:  Most lenders do FHA loans.. but beware, all interest rates are not created equal. Shop around. Ask your realtor for some names of lenders they trust. I can guarantee they know someone with a low rate.

     

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