FHA loans are popular with mortgage borrowers and brokers but why?
First, FHA loans offer borrowers lower down payments and have less stringent requirements to be qualified. FHA loans are insured by the Federal Housing Administration (FHA). Borrowers are able to get FHA loans by paying for a mortgage insurance that protects lenders in case of default.
WHY FHA LOANS
Lenders offer FHA loans at a more attractive interest rate because the insurance that comes along with FHA loans protects them from possible default by a borrower.
Here are 7 more facts about FHA home mortgage loans:
Down Payment
The Down Payment rates for an FHA loan can fluctuate from borrower to borrower depending heavily on credit score. If the borrower has a credit score of 580 or higher can generally get a mortgage with a down payment of only 3.5%
Those with credit scores of 500-579 must make down payments of 10% and those with credit below 500 are usually ineligible for FHA loans. Though, those with “non-traditional credit” or insufficient credit can meet other requirements and receive a loan.
More Down Payment
Most borrowers qualify for 3.5% down payment for an FHA loan. Saved cash can be used for the down payment or even gifts from family or a grant from state or local down payment assistance programs.
Closing Costs
The FHA allows home sellers, builders and lenders to pay some of the borrower’s closing costs, such as an appraisal, credit report or title expenses. For example, a builder might offer to pay closing costs as an inducement for the borrower to buy a new home.
Lender Requirements
Lenders must be approved and registered with the FHA to offer FHA loans. The FHA offers the insurance and approved brokers lend the money. FHA Loan Group is approved to provide FHA loans.
Paying the Mortgage Insurance
Two mortgage insurance premiums are required on all FHA loans: The upfront premium is 1.75 percent of the loan amount — $1,750 for a $100,000 loan. This upfront premium is paid when the borrower gets the loan. It can be financed as part of the loan amount.
The second is called the annual premium, although it is paid monthly. It varies based on the length of the loan, the amount borrowed and the initial loan-to-value ratio, or LTV.
Extra Cash through FHA Loans
The FHA has a loan program that allows borrowers to get extra cash to make repairs to their home. The loan amount is based not on the current value of the home but the projected value after the repairs. Also, streamlined loan allows borrowers to finance up to 35k for repairs that are non-structural like painting, replacing fixtures, cabinets, etc.
Financial Hardship Relief
Loan servicers can offer some relief to borrowers who have an FHA-insured loan, have suffered a serious financial hardship and are struggling to make their payments. That relief might be a temporary period of forbearance, a loan modification that would lower the interest rate or extend the payback period, or a deferral of part of the loan balance at no interest.
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