five fha home loan facts

FIVE FHA HOMELOAN FACTS

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The lower down payments and more lenient lendingstandards make FHA loans one of the more popularoptions for mortgage borrowers. An FHA loan is amortgage loan insured by the FHA also known as, theFederal Housing Administration. Borrowers whochoose this option are required to pay for mortgageinsurance, which protects the lender in the event theborrower defaults on the loan.



Why Borrowers Prefer FHA Loans:

The insurance, borrowers are required to pay is one ofthe main reasons people choose and prefer a FHA loanover other loan options. Lenders are able to offer theseFHA loans at a significantly lower interest rate as wellas be more lenient and flexible with their qualificationrequirements, which makes the FHA loan a favoredoption for borrowers.



Credit ScoreMajority of lenders have a minimum credit score requirementwhich a borrower much meet or exceed before they arequalified to utilize the FHA loan. The down payment amount aborrower may have to pay depends on the borrower’s creditscore. For example, a borrower with a credit score of 580 orhigher may be qualified for a down payment as low as 3.5%. Aborrower with a lower credit score than 580 may have to putdown at least 10%. It’s helpful to know your credit scorebeforehand, but your lender can always help you obtain yourscore. For borrower’s who have a score lower than 500 areusually ineligible for a FHA loan, however there are steps youcan take to increase your credit score.



Down Payment

While there are very few mortgage loans that don’trequire a down payment, one of the favored reasonsborrowers do choose the FHA loan over other loanoptions is the low down payment, at only 3.5% of thepurchase price. Of course as stated above, that is ifyou meet the minimum qualifying credit score.



Closing Costs

One of the many benefits of the FHA loan is borrowerscan have their closing costs covered by the seller, builderor even the lender. When the lender agrees to pay theclosing costs they will usually charge a higher interestrate. However, borrowers can always compare loanestimates from competitor lenders to find the lender andoptions that work best for them.



FHA Approved Lenders

The FHA is a home loan program it is not a lenderbut more of an insurer, which means to utilize ityour lender must be a FHA approved lender. Makesure to do plenty of research and compare lendersbecause not every FHA lender offers the sameinterests rates.



203(k)The FHA offers a special loan program for borrowers whomay need a little extra money for repairs to their new home.This special loan program is called a 203(k), utilizing thisprogram allows borrowers to finance up to $35,000.00 fornonstructural repairs. For example, replacing fixtures,remodeling cabinets or even painting. The 203(k) loanamount is based on the projected value rather than theappraised value. Meaning, the loan is based off how muchthe house will be worth after repairs and such are completed.This program is great for a home that may seem a little out ofdate and just needs a few upgrades.



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Justin McHood is Americas MortgageCommentator and has been providingMortgage commentary for over 10 years.

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five fha home loan facts

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