The government has been doing quite a good job in proving housing opportunities for everyone, even to those who normally don’t qualify for conventional loans. The American Dream is more achievable than ever before. FHA loans are preferred by most borrowers because of the less strict guidelines that come with them. Lenders are more lenient because these loans are backed by the Federal Housing Authority (FHA). This loan program is under the U.S. Department of Housing and Urban Development.
Here are the top 5 facts about FHA loans together with quick explanations to give you a good start on your search for information:
1. Down payment and credit score requirements are less strict
The down payment requirement is based on your credit score. If your credit score is 500 and 579, you must put down 10% of the home value. A credit score of 580 or higher allows you to put down as low as 3.5%. In some cases, those with nontraditional credit history or insufficient credit may be allowed to take an FHA loan. Ask your lender how.
2. There are different down payment sources available
If your own savings is not enough to meet the 3.5% down payment requirement, there are other sources of down payment funds. You may use ‘gifts’ from family and friends as well as government grants. There are also different down payment assistance programs in most states, so you can really make that dream of having a home a reality.
3. Closings costs can be paid by the lender, builder, and home seller
You don’t have to pay the closing costs on your own. Some lenders, builders, and sellers offer to shoulder the appraisal, credit report fees and title expenses. Do not hesitate to ask them if that’s possible.
4. You are required to pay insurance premiums with an FHA loan
There are two insurance premiums required on FHA loans: upfront and annual. The upfront insurance premium is 1.75% of the loan amount paid at closing while the annual premium starts at 0.45% of the loan amount (15year loan with at least 10% downpayment) and up to 0.85% of the loan amount (30year loan with 5% downpayment or less).
5. Special programs are available for FHA loan borrowers
FHA loans borrowers can take advantage of special programs such as the “streamlined” 203(k) which allows you to finance as much as $35,000 for new paint, cabinet replacements, and other nonstructural repairs. Most of these programs do not require an appraisal and further documentation requirements. When in doubt, seek help from an FHA approved lender Only lenders that are certified by the Federal Housing Authority are allowed to finance FHA loans. Make sure you find a lender that is FHAapproved to take advantage of this loan program. You can start looking for lenders in your locality or we can help you find your match. Click on the orange button below and in a few clicks, you will get matched with a lender based on your available down payment funds, credit score, location preference, and other factors.
When in doubt, seek help from an FHAapproved lender
Only lenders that are certified by the Federal Housing Authority are allowed to finance FHA loans. Make sure you find a lender that is FHAapproved to take advantage of this loan program. You can start looking for lenders in your locality or we can help you find your match. Click on the orange button below and in a few clicks, you will get matched with a lender based on your available down payment funds, credit score, location preference, and other factors.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.
