FHA Loan Information
When weighing the FHA loan program, there are really a number of issues which you should take into consideration. Contact an expert mortgage origination professional by using our quick quote to discuss your situation and get a free consultation. There is no obligation, and your information is always treated with the strictest confidence!
One of the most important issues relevant to the FHA loan is, in fact, credit. While credit score is no factor, your credit quality is. The fact is, you're better off having no credit history than having recent bad credit. Primarily, an underwriter will need to know what caused any problems you might have had in the past to ensure you have addressed and rectified these financial matters. If more recent, such as within the past 12 months, then we have a much more sophisticated process for getting a pre-approval. You can check out our Credit Repair section and the FHA guidelines section for more details. Ready to speak with an expert? Use our quick quote to talk about your situation.
The second issue to give consideration to is the FHA loan limits. The fact is, there are not any Jumbo mortgage programs with FHA. These programs are not designed for the financing of luxury home properties, so you'll want to be certain your home or your planned purchase amount falls within the FHA loan limits for your area.
Another factor to consider is downpayment. In this market, conventional downpayment requirements range from 10% to 20% or more with a few exceptions; if you don't meet those exceptions, you can expect to have to pony up some serious cash for a downpayment. With the FHA loan program, you typically only need to plan for a 3.5% downpayment plus your closing costs. Unlike traditional loans, FHA allows the seller to contribute up to 6% towards closing, whereas in a conventional loan, you are at the underwriter's mercy.
It's true that with a refinance or FHA purchase, the FHA closing costs can sometimes be $500 or so more -- but they can also be less. There is also the issue that some people have with upfront MIP (FHA mortgage insurance premiums) which will add to your loan amount. However, this amount is financed by the lender. Before you get too discouraged, keep in mind that PMI (private mortgage insurance) is twice as expensive in your monthly payment (because you're not paying any of it upfront). Further, the PMI does NOT protect you, it protects only the lender. MIP with the FHA also only protects the lender; however, with the FHA loan comes HUD pre-foreclosure options that you will NEVER get with a conventional mortgage. Finally, some real estate agents and sellers don't particularly care for the FHA loan because the program can cause problems with financing. Why? Well, the FHA appraisal can identify problems with a home that a seller must address (repair) at their cost before the loan can close. It protects you from potential problems and some agents and sellers just don't like that fact!
Historically, when rates are going up, the FHA loan rates are typically lower. Why is this? It traditionally takes 1 to 3 business days for the FHA rates to fully adjust for the market. So, when rates are going down, naturally, you have to wait before locking an FHA loan to give them time to catch up. Otherwise, FHA loan rates are typically as low as (and sometimes lower than) traditional interest rates in the conventional loan market.
We hope this page helps give you some perspective on some of the positive and negatives associated with the FHA loan. The fact is, the FHA loan program offers home buyers and homeowners far more than any other program today. Most importantly, the FHA loan program offers you security and peace of mind -- something you can't put a price on! Use our quick quote to learn how an FHA home loan can benefit your family.