FHA Loans are Mortgages Insured by the Federal Housing Administration
An FHA loan is a government loan program where the government insures the loan to the lender (note they do not guarantee the loan only insure) FHA does not underwrite the loan, each lender underwrites their own FHA loan to a base set of guidelines. The lender can be more restrictive than the base set of guidelines, however, they cannot be more aggressive than the base set of guidelines.
- The Minimum Down Payment for an FHA loan is 3.5%
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.
- There is Mortgage Insurance on the loan regardless of how much you put down.
Mortgage Insurance is a fee you pay if you put less than 20% down on most products. However, FHA requires mortgage insurance on ALL loans as this is the insurance that you pay which protects the lender from a loss if you default on the loan.
- There is a mortgage insurance amount 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.
- There is an upfront mortgage insurance amount- this is the mortgage premium that is charged when you get your loan. It is often rolled into your loan for your “total” loan amount.
- The mortgage insurance never goes away on FHA loans (as of September 21, 2017).
- FHA rules can at times be a less restrictive compared to conventional loans.
- Not all properties will qualify for FHA Loans.
- FHA allows down to 500 credit score, however, many lenders will not go below 600. We have lenders that WILL go down to a 500 credit score (other conditions may apply for this particular program).
- FHA Rates are usually a little lower than conventional rates. However, have your Rainbow Mortgage Inc. expert crunch the numbers for you, sometimes a lower rate does not equal a lower payment.
- Most FHA Loans are assumable, which means that if rates are high and you have a low FHA rate, a buyer may be able to assume the balance of your loan. This may be a huge marketing benefit for selling your home. Ask your Rainbow Mortgage Inc. expert for details about assumptions as not all buyers will qualify for this.
If you are interested in having your unique situation reviewed for an FHA Loan, please contact one of our experts at Rainbow Mortgage Inc. for a no cost initial consultation to determine the best loan option for you.
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