FHA Financing Information FHA Loan Program Details
FHA is a loan program where private mortgage insurance is provided with federal funding. Most major banks provide it. Although it is usually used by first time buyers, it is not restricted to them.
Benefits Of FHA Loans
There are many important benefits of FHA loans. The required down payment for FHA mortgages is 3.5 percent, which aids buyers without a larger down payment. They also permit home buyers to receive funds for down payment and closing costs as a gift from a family member. An additional benefit is the simplified refinancing process. It allows people to refinance to a reduced rate without getting a new appraisal, which is helpful if mortgage rates and property values both drop. The loans are also assumable, meaning that a new buyer can take over the mortgage at the fixed interest rate (if they qualify). This can help when interest rates rise dramatically. Finally, it does not penalize buyers for FICO scores. Although home buyers must still have a minimum score, below average amounts will not lead to higher interest rates.
Disadvantages Of FHA Financing
There are disadvantages of FHA financing to consider. FHA mortgage insurance (MI) is normally higher than a conventional loan. There is an up-front fee and a monthly fee due with each payment for the life of the loan. For condominium purchases, the building must meet particular guidelines such as minimum reserves and certain owner occupancy levels. Converted multi-families are thus difficult to get approved. Single family properties must also meet certain requirements regarding safety.
FHA Pre-approval Recommendations
Prior to requesting a pre-approval, review your credit score and address any problems. Also track important financial documentation such as bank statements, tax filings from previous years, recent pay stubs, and investment account statements. Loan officers will often ask for these items. Ask a mortgage consultant to obtain potential monthly payments (based on a particular purchase price and your financial qualifications) and closing costs prior to getting too far in the process.
FHA makes buying a home achievable for certain buyers who might otherwise not qualify for financing. It can also make refinancing or listing a property less complicated in the future. However, there may be more fees and property criteria, so not everyone is able to or will wish to use an FHA loan. Speak with an FHA loan expert to better evaluate this option.