Buying a Home with an FHA Purchase Loan
Why an FHA Loan?
Firstly, the FHA, (that’s Federal Housing Administration) is an insurance company, not a mortgage lender. Therefore you can obtain an FHA loan through a number of different sources including banks, mortgage bankers, and mortgage brokers. FHA insures some of the risk that a lender takes by making a loan with less than 20% downpayment. FHA will generally require a 5 to 10% downpayment along with meeting other qualifications of the program. Speak with your lender for exact details on your scenario.
Major benefits of FHA Purchase Loans
1 Low down Payment (3.5% of the lesser of either the appraised value or sale price)
2 Seller may pay ALL of the buyer’s closing costs and prepaid expenses
3 Seller can make financing concessions (up to 6% of the sale price)
4 Funds to Close maybe be obtained by a family member or long term friend and may be gifted or loaned to 100% of required funds to close.
5 Cash Reserves Not Required (except in certain circumstances)
6 Up Front MIP (Mortgage Insurance Premium) May Be Financed into the loan
7 Borrower may Finance the Costs of Energy Efficient Improvements (within certain limits, 100% of qualified improvements may be financed)
8 Combined Loan-to-Value (CLTV): When combined with the FHA loan, government subordinate liens (2nd loans) can exceed 100% of appraised value if the funds are used for down payment and/or closing costs.
Additional Benefits of FHA Purchase Loans
1 FHA will insure loans with much lower credit scores.
2 You can obtain an FHA loan less than 3 years after a bankruptcy if you have good credit since the bankruptcy, and similar circumstances exist if you’ve had a foreclosure.
3 FHA Loans offer very Competitive Rates and Terms
4 FHA Loans allow high debt ratios
5 FHA Loans allow fewer repairs on the property than in years past
6 No prepayment penalties if you pay the loan off early or sell
What exactly is an FHA Loan?
An FHA is a mortgage loan insured by the the Federal Housing Administration (FHA) which provides mortgage insurance to specific FHA approved US lender for both single and multi-family homes. The FHA has been in existence since the 1930’s nad has insured more than 34 million properties. Homeowners who use FHA loans pay a mortgage insurance premium (MIP) each month on top of their principal and interest payment on their loan in addition to an up front premium of 1% of the base loan amount. From these fees comes the revenue that allows the FHA to make favorable loans without major downpayments that stiumulate community development and the housing markets.
Who Are Good Candidates for FHA Mortgages?
First Time Home Buyers with low downpayments.
Low to Moderate Income Families
Borrowers with Less than Excellent Credit
Borrowers with previous Bankruptcies or Foreclosures
Does FHA offer a refinance program as well as Purchase Loans?
Yes. Although FHA loans are excellent for first time home buyers and trade up buyers, they are equally effective for refinance transactions. Below are the 3 most common types of FHA refinance loans.
· Streamline Refinance: the FHA streamline refinance is usually a much accelerated process than a traditional refinance with a limited need for appraisals and credit checks
o No Cash-Out Refinance: This FHA conversion refinance can be used to convert a conventional mortgage, VA mortgage, or non-conforming loan into a traditional FHA loan. No cash can be used to payoff additional loans or be given back to the borrower; otherwise the loan will be considered a cash-out refinance
o Cash-Out Refinance: An FHA cash-out refinance allows for higher loan-to-value (LTV) ratios. Most recently, FHA reform has limited such transactions to a maximum of 85 percent loan-to-value ratio and lower.
Whether you're a first time buyer or you're looking to refinance your home, an FHA loan can be the way to go.