Loans provided by Federal Housing Administration or simply FHA loans are popular among mortgage borrowers for many reasons. One of the reasons is its easy availability on lower down payments. Qualifying for FHA loan is no rocket-science as individual with less-than-perfect credit can also qualify. But, FHA loan is not for everyone and hence, better know some facts about this before making any decision. So, check out at some important facts about FHA loans, how they work and when you should go for it.
Here are Seven Must Know Facts about FHA Loans that Borrowers Should Know:
It’s OK if Credit Score is not Perfect
Individuals who have lower credit score can also qualify for FHA loan. Though it depends on the need of borrower and the type of loan as well. Individuals can get this loan at 3.5% if they are maintaining the credit score of 580 or above.
- People with credit score under 500 are ineligible for FHA loan in general.
- Check out your credit score before making a decision.
- Ask your lender or any FHA specialist if you qualify.
Down Payment is Mostly 3.5%
One of the biggest reasons why borrowers incline towards FHA loan is its lower down payment. Even with your savings, you can make the down payment and enjoy the benefits of loan.
All you need is to check out some online sources and collect more details to obtain FHA loan. Mostly you will have loan at 3.5% down payment of purchase price of home.
Cover Closing Cost
Some of your closing costs such as credit report or title expenses and appraisal are covered in FHA. As an incentive for the borrower, builders can pay the closing costs.
While agreeing to pay the closing cost, lenders can charge little higher interest rates. What makes sense here is to do effective comparison of available FHA loan options. There are various FHA loan providers out there and in great competition. You can feel free to compare and figure out what fits your needs the best.
Check out if Your Lender is Approved by FHA
Joining the list of facts about FHA loan, FHA is not a lender, it is insurer. Borrowers are hereby advised to opt for loan from FHA approved lender.
Point to remember: Neither every FHA loan provider is the same, nor their interest rates.
Borrowers need to shop around a little as services, costs and underwriting standards vary from lender to lender.
Mortgage Insurance in Two Parts
Let’s say you are opting for a loan amount of $100,000, upfront premium will be 1.75% i.e. $1,750. After the borrowers get loan, this premium is paid.
Another part stands for annual premium. It is paid on a monthly basis and varies according to loan amount, loan length and loan-to-value (LTV) ratio.
Borrow Extra Cash for Repairs
FHA product line is vast and it also includes extra money for home repair necessities. This loan is regarded as 203(K) loan and is calculated on projected value after repairs are done. It is the biggest advantage of this type of loan.
Borrowers can get finance up to $35,000 with another product called “Streamlined” 203(k).
It can be utilized for non-structural repairs such as replacing the cabinets or painting the home.
Relief Available in Financial Hardship
FHA insurance is never easy for individuals who are unhappy with mortgage payments.
Individuals with FHA-insured loan get some additional benefits. If you face tough financial situations and find yourself unable to make payments, you get some relief. These relieves are in the form of temporary forbearance and extended time period of loan.
It can also include modification in loan with lower interest rates.
FHA Loan: How it Works?
FHA loans are provided by private lenders, what FHA does is to back them. Start your search for the loan and consult online mortgage brokers about FHA loan facts. Have a word with loan officer on available alternatives and help you to make sensible decisions.
The mortgage insurance premium (MIP) paid by the home buyers is 1.75%.
The best thing about FHA loan is that it is available for a wide variety of property. Buyers can go with duplexes, family homes, manufactured homes and other kinds of properties.
When You Should Neglect FHA Loan?
It is a fact that, FHA loans are rich in features, beneficial and attractive. But, as mentioned earlier, FHA loans are not for everyone. There are some situations where individuals must avoid FHA.
In case you need a big loan amount, FHA loan cannot be a good fit.
When it comes to upfront insurance premium, premiums can be a costly affair. It can even cost higher than private mortgage insurance.
After knowing fact about FHA loan, all you need is to connect with a trustworthy FHA loan provider. Let the professional analyze the current financial picture of yours and then they will give better suggestions.
If you find yourself in need of FHA loan, be careful while making a choice. Reason being, a single miss can lead to troubles in the future.
Hope this piece of article has proved to be helpful and informative. You can have a detailed discussion on the same with your loan provider or loan expert as they can guide you in a better way. In addition to speaking with mortgage or FHA professional, you can shop around as well. Compare the loan offers you have and make a smart buying decision as there are many options out there.
There are many online sources that allow you to make a comparison among loan providers. It is your time to find an effective online source to do the needed help.
Pass it on to others who need this information and share it for benefits.