April 4, 2017
Thinking of an FHA loan? Did your loan officer suggest FHA
financing for your situation? For buyers who want to come to the settlement
table with as little cash as possible then the FHA mortgage is certainly an
option. Yet here are five things you may not now about this mortgage.
FHA loans come with a guarantee to the lender. Not to you,
but to the lender. Should the loan ever go into default the lender is
compensated for the loss as long as the lender approved the loan using proper
FHA guidelines. This guarantee is financed by two mortgage insurance policies,
an upfront policy equal to 1.75% of the loan amount and an annual premium paid
in monthly installments.
Minimum credit scores for FHA loans are typically lower
compared to conventional loan programs with a down payment of less than 20% of
the sales price. While the FHA doesn’t set a minimum credit score individual
mortgage lenders do and this minimum is a score of 580.
Conventional loan programs can ask for a down payment as low
as 3-5% of the sales price of the home keeping it competitive in some ways with
the FHA loan. However, the interest rates on conventional loans with a low down
payment option are typically higher than an FHA mortgage.
Varying Loan Limits
FHA loan limits can vary by county and are calculated using
115% of the median home value for the area.
There are also so-called “high cost” areas where FHA loans can be used
for loan amounts as high as $625,500.
Your Lender Does It
The FHA doesn’t approve your mortgage application nor review
the property appraisal. Instead, individual lenders who are approved by the FHA
to underwrite and approve FHA loans do. An FHA approved lender originates,
approves and funds the application as well as ordering the appraisal.
For more information or questions about mortgage loans, please call (855) 757-8748.