FHA Loans

FHA Loans2018-12-19T15:40:47+00:00

What is a FHA home loan?

The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. Since the mortgage meltdown of 2007, FHA’s role in helping home buyers has increased significantly.

The share of home purchases financed with FHA mortgages jumped from an average of 2% to nearly 35% of all mortgages written in the United States. This increase was primarily due to conventional mortgage loans drying up in the credit crunch.

With sub-prime loans now a thing of the past, FHA has stepped in to help borrowers with less than perfect credit or minimal down payments achieve the American dream of home ownership.

Unlike sub-prime loans, borrowers today must prove enough income to qualify for the new monthly payment. This insures that loans approved today are of a better quality than those of the sub-prime boom and this has significantly strengthened the housing market.

What are the advantages of an FHA loan?

  • FHA only requires a 3.5% down payment and the funds can come from a variety of different sources.
  • Qualifying is easier and allows for lower credit scores and higher debt-to-income ratios.
  • Down payment can come from gift funds, employers, labor unions, and down payment assistance programs.
  • Gift funds must be received from a blood relative or someone married to a blood relative. Gift funds may not be in the form of cash and must be sourced by your lender.
  • Important note. FHA loan limits are different than conforming limits and vary from state to state and county to county. Please have your loan expert verify the maximum loan amount available in the area you wish to purchase in.

Do I have to pay mortgage insurance?

All FHA loans require mortgage insurance. This protects the lender against losses that they would normally take in the event your home goes into foreclosure.

There are two types of mortgage insurance that you must pay with an FHA loan, up-front mortgage insurance, and monthly mortgage insurance. The up-front insurance is calculated as 1.75% of the loan amount and can be added to the loan. The monthly mortgage insurance varies depending on the amount of your down payment, but is usually .85% of the loan amount divided by 12 months. This total is added to the monthly payment and decreases slightly each month as your principal balance goes down.

Unlike a conventional loan, FHA mortgage insurance never leaves the mortgage unless you sell or refinance.

What is a FHA streamline?

Streamline refinances are a simple way to lower your FHA monthly payments loan by lowering your interest rate.

FHA streamline refinances are the quickest and easiest way for FHA-insured homeowners to refinance their mortgages.

The FHA streamline refinance program’s defining characteristic is that it does not require a home appraisal. Instead, the FHA will allow you to use your original purchase price as your home’s current value, regardless of what your home is actually worth today.

With this guideline, FHA does require you to have equity in your property, and allows for underwater mortgages. The primary advantages of an FHA streamline are limited documentation required and in most cases you can use the original appraisal to determine the value. With a streamline refinance, you are guaranteed a lower monthly payment. A lender cannot refinance a loan unless there is at least a 5% reduction to the monthly payment.

Are you ready to move forward with a purchase or refinance? Please give us a call at 888-810-1459 and let us help you secure financing for the purchase of a new home or save you money on the refinance of your existing home. Be sure to ask your loan officer about our closing costs incentives and our low rate guarantee!

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Disclaimer: The information contained in this article has been prepared by an independent third party and is distributed to consumers for educational purposes only. The information is considered reliable but not guaranteed to be accurate. The opinions expressed in this article do not represent the opinions of Finance of America. Please consult with a licensed loan officer for expert advice regarding financing or refinancing a home.