The decision to buy a home is one made by many Americans each year. And most homebuyers, approximately 86 percent in 2016, received home mortgage loans to do so. It’s certainly an occasion to celebrate, and having the right partner for the financial process is as important as having the right realtor to help you find the home.
Loan officers at mortgage loan companies can talk you through the different loans available and help you make a wise decision about which financing option you’ll want to choose. In our first post in the series, Common Types of Mortgage Loans, we discussed conventional home loans, and hopefully helped you to understand the basics. Today, we’ll discuss FHA loans.
What is the FHA?
Congress established the Federal Housing Administration (FHA) in 1934 to reinvigorate the flat housing industry at the time and increase the number of homeowners. At the time, a mere 40 percent of homes were owned outright.
Since its inception, the organization has provided the mortgage loans necessary to give many homebuyers the opportunity to own a piece of the American dream. The FHA is the largest mortgage insurer in the world and has insured more than 34 million properties in its lifetime. First-time homebuyers, those with less than stellar credit and those who are unable to provide a large down payment are greatly helped by this program.
What Are FHA Mortgage Loans?
FHA loans are government-insured mortgage loans provided by federally-approved lenders. The loans have an insurance requirement, which the borrower pays as a portion of their monthly mortgage payment, and it remains for the life of the loan.
FHA mortgage loans have a two-part insurance premium with the first part due at closing. The borrower will need to provide approximately 1.75 percent of the loan for this initial premium. The second part is paid as part of the monthly payment, and is referred to as the annual premium. The percentage paid depends upon the length of the loan and is higher for longer terms.
The insurance on these mortgage loans helps the FHA have the distinction as the only government agency which is not taxpayer funded. It operates completely on its own self-generated income, according to its parent agency, the Department of Housing and Urban Development (HUD).
Benefits of FHA Mortgage Loans
Because of this government-backed insurance, many lenders are able to offer lower interest rates and flexible guidelines to those who apply. For example, a credit score in the 600s is necessary when applying for conventional mortgage loans, but with an FHA loan the requirement is 580. Homebuyers with a higher score can qualify for a down payment as low as 3.5 percent. Applicants with credit scores between 500 and 579, can still apply, but upon approval their down payment percentage can be as high as 10 percent.
FHA mortgage loans also have the potential for savings on closing costs. According to guidelines, up to 6% of the purchase price can be added to seller concessions, which puts that amount back on the seller. This means less out of pocket for you.
Finally, another great perk available with the FHA loan is the ability to use it for home repairs. In 2016, the average projected spend for home renovations was as low as $5,800 but had the potential to grow to $18,000 in those “sweet spot” areas throughout the country with a large number of homes originally built between 1960 and 1980. This is a serious case of life imitating HGTV art.
FHA mortgage loans have a special product called the 203(k) which allows buyers to add the cost of renovations into the main loan. Up to $35,000 can be used for nonstructural repairs like painting, modernization, major landscaping or even energy conservation, “green”, improvements.
Mortgages USA Provides FHA Mortgage Loans
Now that you’ve learned more about this government-insured financing option, we’d love to serve your family. Many people believe home ownership to be out of reach, because of other debts or minimal funds available for a down payment. We hope you now see, these are obstacles which can be overcome.
Our expert loan officers are ready to answer your questions about all types of mortgage loans to help you achieve your goal of owning a home. For more information on conventional loans, read our blog here. If you’re ready to get started, contact us today to experience our personalized and expedient service.