FHA Loans

The Federal Housing Administration (FHA) offers an extremely competitive loan program for first-time homebuyers and for those who cannot afford a 20% down payment. The advantages of the FHA program are numerous: credit score standards are lower and the down payment required is only 3.5 percent.

Applying for and Acquiring an FHA Loan

While FHA loans are commonly referred to as being for first-time home purchasers, the program will also accept any buyer who intends to reside within the property being purchased who has not purchased a home within the last five years.

To be accepted into the FHA loan program, the borrower's mortgage payment expense cannot be more than 31% of the borrower's effective income. Further, the borrower's total debt cannot be above 43% of the borrower's effective income. Most mortgage lenders offer FHA loans, though not all; a borrower will need to specify what type of loan they are seeking when they apply.

Qualifying a Property for an FHA Loan

Every state has a cap on the market price of a property that an FHA loan can be used for. The amount of the property cannot exceed that amount even if the buyer is willing to pay the difference in cash. Additionally, the FHA loan program is generally used for single-family homes and townhomes. 

Important Factors to Consider

As with many lower down payment mortgage products, the FHA loan does require borrowers to cover the Mortgage Insurance Premium (MIP). Since the Federal Housing Administration offers certain protection to both lenders and borrowers with this type of loan, the borrower will be responsible for this small additional cost. 

While many FHA loans are used by borrowers who either can’t or don’t want to put down a full down payment when purchasing a property, they can also be used to refinance an existing mortgage loan on a property already owned. Borrowers must be current on their existing mortgage in order to be eligible to apply for a FHA refinance loan. Are you ready to find out exactly how you can save with a FHA loan? Contact our loan specialists today to get started!

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