The Federal Housing Administration (FHA) residential loan program is one of the best loan programs for someone looking to buy a home or refinance a home they already own. Understanding the important parts that make up an FHA loan will enable a homebuyer or homeowner to obtain a new loan at great terms. The loan program is designed for people who may not be able to obtain traditional financing; such as those with less than perfect credit or someone that has a small down payment.
Having important information from a comprehensive guide to FHA home loans will help you get a better home loan and possibly save you money.
What Is A FHA Home Loan:
The program started in the 1930’s; after the great depression. It was designed to help families buy homes and stimulate the economy as part of the New Deal. In the 1940s the Federal Housing Administration helped war veterans purchase their first home upon returning from the war. Specifically; a FHA home loan is a loan that is backed by the United States government to be used for the purchase of a residential home or for the purposed of refinancing a mortgage attached to a residential home. Because the mortgage is backed by the government, the FHA will reimburse a lender who makes FHA loans if a borrower defaults.
The FHA does not make the actual loan; banks and lenders make the loan to the homebuyer or the homeowner.
FHA Loan Requirements:
Before you apply for an FHA loan, it’s important you know the requirements for getting one. Not everyone qualifies, and not all properties are eligible for an FHA loan.
• Eligible properties: FHA home loans can be used for Single Family Residences, Condominiums, Townhomes, and 2-4 Unit properties.
• In-eligible properties: Commercial property, properties with more than 4 units, land, and industrial property.
• The maximum loan amount for an FHA loan is $314,827.00, and in areas, with really high home values the limit is $726,525.00.
• If you have 3.5% equity or you want to put down 3.5%, then your minimum credit score is 580. If you are below that, then you’ll need 10% equity or a 10% down payment.
• Your debt-to-income ratio needs to be 43% or below. You might be able to go higher than 43%, but that is a case by case basis.
FHA Home Loan Rates:
If you are buying a home or refinancing your current mortgage, you are probably asking who has the lowest mortgage rate? Shopping around for a low FHA loan rate is important if you want a low mortgage payment. And it’s important you get your quotes from reputable mortgage companies with great reputations. Right, how FHA home loan rates are low, and it’s a great time to buy a home or refinance a mortgage. You can get a 30 year fixed rate or a 15 year fixed rate; whichever is best for your monthly budget.
FHA Mortgage Insurance:
Some people think this is your home insurance plan; it’s not. FHA Mortgage Insurance is an insurance policy that the homeowner pays in case the homeowner defaults on their loan. You pay the premium each month with your regular mortgage payment. It might be a tax deduction for you so check with your CPA to see if it is tax deductible. Also; when you first close your FHA loan you pay a one time upfront fee that’s either added to the loan amount or the interest rate is increased to cover the cost. If you are interested more in this topic, you can read here more about it.
Who Should Use The FHA Loan Program
Anyone with a credit score below 700 or someone who has a small down payment should consider obtaining an FHA loan if they are buying a home or refinancing their current mortgage. It’s a great way to get a low-interest rate, and the qualifications are fairly easy. Mortgage rates are really attractive right now, so it’s a good time to act. Don’t forget to get your documentation ready (income documentation and if you’re refinancing then your mortgage statement and homeowners insurance too) and start finding the best mortgage companies for your next FHA home loan.