Introduction to FHA Loans
FHA loans are an attractive option, especially for first-time homeowners because it is insured by the Federal Housing Administration (FHA). Primarily, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.Typically the borrower can be approved with 3.5% down vs 20% that is required on other loan programs. The buyer pays an up front funding fee at the time of close that can be rolled into the loan amount, and then mortgage insurance for the life of the loan, in exchange for lower interest rates, an expanded lending universe that allows for lower credit scores and higher debt to income ratios, and a generally lower down payment than most other loan products on the market
Benefits of an FHA Loan
The benefits of an FHA loan are numerous, and many home buyers will find that this is the best (or perhaps only) possible loan for them. As a starting point in any discussion involving FHA loans, the borrower should know that the FHA program is generally much more lenient allowing lower credit scores and less waiting time for major credit trauma’s (eg: Bankruptcy, Foreclosure, Collections), which allows more borrowers to have a chance of buying their dream house.
Due to the nature of the loan and the backing by the federal government, FHA loans also come with significantly lower interest rates compared to people similarly situated with their credit. Typically, an FHA loan can be somewhere between 0.25% and 0.75% lower than a similarly priced conventional loan. Borrowers also often pay less in Mortgage Insurance on a monthly basis with an FHA loan than they would with a conventional loan.
A further benefit of FHA loans for most people is that a higher debt to income ratio is allowed in qualifying for the purchase of their house. Typically, most loans in the marketplace allow the borrower to have a debt to income ratio between 42 and 50% when qualifying for a loan, but an FHA loan often times allows borrowers to significantly exceed that qualification ratio. Typically, what this means is that most buyers can afford to buy more house with an FHA loan as opposed to most other loan products on the market place
Finally, an FHA loan typically comes with a 3.5% down payment, which often times is minimized by various down payment assistance programs, and allows seller contributions, typically, of up to 6% What this means, for the average borrower, is that an FHA loan is often times the path to home ownership that involves the smallest cash outlay at the time of purchase.
FHA Loan eligibility and requirements
The guidelines for FHA loans are lengthy and numerous and too detail oriented to cover in this space and time. Suffice it to say, it can be bewildering for any borrower to try to navigate these guidelines on their own. The best way to see if you qualify is to have a professional consultation and interview with a mortgage professional who deals with these guidelines every day. We’d love to help you with that free consultation at any time.
Mortgage Insurance Premium
Typically, the Mortgage Insurance Premium on an FHA loan is 1.75% up front funding fee (that can be rolled into the loan amount so that you pay that back with the regular loan) and then an 85 basis point mortgage insurance through the life of the loan. Most borrowers, other than those with extremely high credit scores, will find that mortgage insurance premiums on FHA loans are typically lower than for conventional loans. Also, unlike conventional loans the mortgage insurance rate is the same for everybody, regardless of credit score, and it does not go away until the loan is paid in full (conventional loans typically have mortgage insurance that drops from the payment when the loan to value falls below 80%).
FHA Loan Limits
Loan sizes vary by county and type of property in the State of Texas. Click here for loan limit by property type and county where you are interested in purchasing
How We can Help
At Mortgage Solutions, we know all about FHA loans and can get you pre-approved for one so you can begin your journey in buying a home you love. If you are located anywhere in the state of Texas, contact us to get started.