FHA loans have been helping people become homeowners since 1934.
The Department of Housing and Urban Development announced the annual mortgage insurance premium for FHA loans will decrease from 0.85% to 0.55%, a drop of 0.30 percentage points! These lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers!
FHA stands for Federal Housing Administration, which is governed by HUD – The U.S Department of Housing and Urban Development. Many people believe this product is restricted to first time home buyers, but that is not accurate. However, the FHA home loan product is often used for first time buyers who are still working on establishing good credit. Credit score is NOT the driving factor with FHA loans. We’ve closed FHA loans with credit scores below 550! Therefore, the FHA product is often geared toward individuals with lower credit scores. You can still get a very good, fixed interest rate, even if your credit score is low.
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If your credit score is 580 or better, the minimum down payment is 3.5% of the purchase price of the home. For example, if you purchase a home for $200,000, the down payment would be a minimum of $7,000. If your score is below 580, you will need 10% down. Also, the size of your down payment will affect how much you pay in monthly Private Mortgage Insurance (PMI) and when the PMI will go away. With just 3.5% down, your PMI is 85 basis points and will last the entire duration of the loan. The calculation of the monthly PMI payment is: Total Loan Amount (x) .0085 (/) 12 months = Monthly PMI. If you put down 5% to 9.99%, your PMI is 80 basis points and will last the entire duration of the loan. If you put down 10% or greater, the PMI is still 80 basis points, but the PMI will go away after 10 years.
There is another caveat with FHA home loans. In addition to the monthly PMI, this product also requires an upfront fee of 1.75% that is financed into the loan amount. For example, and $200,000 home purchase price with $7,000 down puts the base loan amount at $193,000. The calculation for the upfront mortgage insurance is: Base Loan Amount (x) .0175 = upfront, financed mortgage insurance. In this example it would be $3,377.50. You are not allowed to finance “cents,” but the $3,377 would be added to the base loan amount, bringing the total loan amount to $196,377.
Although the PMI is a bit daunting, don’t worry, because most people will NOT keep the same home for an entire 30 years. You may refinance your FHA loan after seven payments if your credit score improves. Our Broker House Lending staff will assist you with improving your credit score and getting you eligible for Conventional financing.
The FHA offers 30, 20, and 15 year fixed rate products. Some lenders will even do an odd number of years. Also, the FHA does have Adjustable Rate Mortgages (ARMs).
FHA loans have helped out millions of homeowners. It is a great product to get your foot in the door (pardon the pun). Broker House Lending loan officers are FHA experts. We’d love to work with you and earn your business. Just click this link to get started.