6 HELPFUL FACTS ABOUT FHA LOANS
At a time when the entire nation was in crisis, the Federal Housing Administration started playing a vital role in the lives of lenders as they earn security from losses in case a borrower suddenly defaults on their loan. With more flexible qualifications and friendlier interest rates, FHA loans have helped both lenders and borrowers achieve their goals with very minimal to no impact in case something does not go their way.
Here are a few essential facts that you should know about FHA loans:
- Your credit does not have to be perfect. Nobody is expected to have perfect credit, especially with the changing economic conditions that people have to live through. This is why getting approved for FHA loans with bad credit is still possible, depending on the situation. If your credit score is at 580 or higher, you can get your mortgage with a 3.5% down payment. For those with credit scores between 500 and 579, they usually ask for a 10% down payment. For those applying for FHA loans with bad credit scores under 500, there are certain allowances that can be made depending on the case.
- You can pay as low as 3.5% down payment. This number is definitely attractive, although certain guidelines also apply depending on the case. As mentioned before, your credit score plays a big role on the amount that you would have to pay as down payment. To make this payment, borrowers can use their savings, or they can use a gift from someone in the family. You can also check if you qualify for a local or state government assistance program.
- You can include closing costs. Although this would mean that the interest rate may have to be increased, builders, lenders and sellers are allowed to cover the closing costs for the borrower. These costs include title, credit report, or appraisal expenses. If you are a borrower and would like to consider your options, you can use GFE (good faith estimate) to compare the closing costs and the regular interest rates.
- You have to make sure that the lender is approved by the FHA. Remember that the FHA is not the lender. Rather, it is the insurance fund that protects the lender. This means that the loan would not be taken directly from the FHA but from an approved party.
- You need mortgage insurance on your FHA loan. Before being approved for an FHA loan, you would need two forms of mortgage insurance first. The upfront premium is 1.75% of the total loan amount, which will be paid once your loan is granted. This can also be financed from the total loan amount. The annual premium is the second mortgage insurance required. Despite its name, it is actually a monthly payment that depends on the LTV (loan to value) ratioand the total length of the loan.
- You can request for extra funding for repairs. The FHA grants additional loans in case you need funding for any additional repairs that would have to be done on the property. Also called as a 203(k), this loan is based on the projected value of the home after repairs, and not on the current appraised value.
Considering these facts, there is no denying the fact that an FHA loan is the best way for you to secure the home that your family deserves.