What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.

 

Less Than Perfect Credit is OK

Minimum credit scores for FHA loans depend on the type of loan the borrower needs. To get a mortgage with a down payment as low as 3.5 percent, the borrower needs a credit score of 600 or higher.

 

Minimum Down Payment is 3.5%

For most borrowers, the FHA requires a down payment of just 3.5 percent of the purchase price of the home.

 

FHA borrowers can use their own savings to make the down payment. But other allowed sources of cash include a gift from a family member or a grant from a state or local government down-payment assistance program.

Ask about the CHENOA FUND DOWN PAYMENT ASSISTANCE PROGRAM to provide the 3.5% down payment

 

Who Can Pay For Closing Costs?

The FHA allows home sellers, builders and lenders to pay some of the borrower's closing costs, such as an appraisal, credit report or title expenses. For example, a builder might offer to pay closing costs as an incentive for the borrower to buy a new home.

Lenders typically charge a higher interest rate on the loan if they agree to pay closing costs. Borrowers can compare loan estimates from competing lenders to figure out which option makes the most sense.

 

Mortgage Insurance in Two Parts

Two mortgage insurance premiums are required on all FHA loans:

 

Upfront Premium

The upfront premium is 1.75 percent of the loan amount -- $1,750 for a $100,000 loan. This upfront premium is paid when the borrower gets the loan. It can be financed as part of the loan amount and most commonly is financed into the loan amount.

 

Annual premiums for FHA loans

The second is called the annual premium, although it is paid monthly. It varies based on the length of the loan, the loan amount and the initial loan-to-value ratio, or LTV. The following premiums are for loans of $625,500 or less.

 

• 30-year loan, down payment (or equity) of less than 5 percent: 0.85 percent

• 30-year loan, down payment (or equity) of 5 percent or more: 0.80 percent

• 15-year loan, down payment (or equity) of less than 10 percent: 0.70 percent

• 15-year loan, down payment (or equity) of 10 percent or more: 0.45 percent