5 Important Facts Regarding FHA Home Loans
With the housing market in uncertainty, FHA (The Federal Housing Administration) home loans are becoming more crucial for today’s prospective homebuyers. The homebuyer who obtains an FHA loan is required to pay for mortgage insurance as well, protecting the lender from losing money if the borrow is no longer able to make payments on the loan. It is because of this insurance that lenders have the ability to offer better interest rates on these types of loans, and the qualification requirements are generally more flexible than others.
Here are five crucial facts regarding FHA loans that every buyer should know:
1. It is Okay to Not Have Perfect Credit
While FHA does not have a minimum credit score, many lenders including Home Loans Today do have minimum score requirements. With that said, these requirements are at levels where many borrowers can qualify for FHA financing with past credit blemishes including bankruptcy, foreclosures, and collections. It is important that you work closely with your lender to review your individual situation.
2. There is a Minimum Down Payment
All borrowers are required to pay 3.5 percent of the home’s purchase price up-front. However, that is a small number compared to other home loans and is a large attraction for many homebuyers. Borrowers may come up with the money in a number of different ways such as a savings account, a tax refund, or a gift from a friend or relative. Grants may also be available from government programs dedicated to assisting homebuyers in making these payments.
3. Your Closing Costs May Be Covered
FHA Allows for interested parties such as lenders, builders, sellers, and real estate agents to contribute to closing costs. Typically, this is limited to 3% of the purchase price but can assist buyers with paying for title expenses, government recording fees, and other transaction fees.
4. You Must Have Mortgage Insurance
You are required to have two premiums on all loans awarded by the FHA: the annual premium is 1.25 percent of the amount of the loan, and the upfront premium is 1.75 percent. The Up Front Mortgage Insurance Premium, commonly called UFMIP is due at closing but is typically financed above and beyond the 96.5% financing. The annual payment is paid monthly with each mortgage payment.
5. FHA Loans Are Not Just for Purchasing a New Home
It is a common misconception that FHA loans are only for purchase transactions. In fact, many borrowers with little equity in their homes can drastically reduce their interest rates by refinancing using an FHA refinance program. FHA also has a Streamline Refinance program that allows current FHA loan holders to refinance their home with little documentation and NO appraisal.
Even if you feel that you are in a poor financial situation, there are still many resources that you may take advantage of to purchase your dream home. An FHA home loan can help buyers who dream of home ownership, but may not have the means to obtain other loans to do so.
Home Loans Today specializes in a variety of home mortgage options. Visit www.homeloanstoday.com to find out more information about purchasing your next home.