What you need to know about the FHA home loan

Loans guaranteed by the Federal Housing Administration are popular because of several reasons, but mostly because of how this government-assisted loan program makes it easy for plenty of people to purchase a property. For the majority of struggling Americans, homeownership is but a dream. And while FHA does make it easy for many aspiring homeowners to buy their own property, this loan program isn’t for everyone.  


This article aims to shed light on the many facts and guidelines about what the FHA considers when approving home loan applications.

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FHA Overview for the first time home buyer


Down Payment


The FHA permits borrowers to put in a down payment for as little as 3.5%. This enables the borrower to purchase a home with a minimum amount of money shelled out. Additionally, depending on the home loan type, you can also allocate funds for other uses just as long as it’s related to the property you’re purchasing.


All this established a low down payment can potentially also prove to be a disadvantage to many borrowers. By putting only 3.5% of a down payment, loanees borrow more money which could mean that the interest you pay is higher—essentially making the property more expensive.


Past credit discrepancy and issues

Loanees who have troubled credit pasts generally have a difficult time getting approved with conventional loans. But with the assistance of the FHA, one can still be reconsidered just as long as he or she meets the requirements.


FHA loans can cover home improvement


Referred to as the FHA 203K loan, this home rehabilitation loan type allows borrowers to finance repairs as well. What it does is permit the loanee to purchase a property and fund home improvement efforts as well. Combined with other FHA perks, this makes things less expensive and more accessible for the loan applicant.fha 2019

FHA mortgages call for two types of insurance


Generally speaking, borrowers who put in a down payment that doesn’t reach 20% essentially pays for mortgage insurance. Under the FHA, there are two types of insurance loanees have to keep up with: the straight-up 1.75% and recurring monthly mortgage insurance. The mortgage insurance premium (MIP) range from 0.80% to 1.05% of the entire loan balance, although they can also be just 0.45% if a borrower goes for FHA’s 15-year loan. Again, that extra charge means borrowers will have to pay more for every month. Contrary to a conventional loan’s mortgage insurance, the MIP will have to have to be paid for, for the entire life of the loan; whereas conventional loans can let that obligation go when a borrower reaches a 20% equity on the property.


FHA loans are assumable


One feature that conventional loans do not have is assumability. Conventional loan borrowers are obligated to keep the loan until they pay off everything. Under the FHA, existing borrowers may pass on their loan obligations to an equally eligible borrower should they be unable to keep the loan.


For more information on what an FHA mortgage can offer you, contact us!