In today’s Post we’ll cover 3 FHA topics that have lots of folks confused. My goal is to debunked these topics and bring a little clarity. Let’s begin –
#1. What is an FHA? And why so much chatter?
FHA stands for Federal Housing Administration. FHA Mortgage Loans come from the same place any Mortgage Loan comes from – Lenders. The FHA does not lend money, It insures mortgages because it’s an Insurance Pool. Simply put my friends, both conventional Loans and FHA Loans are insured to protect the Lender if the borrow defaults on the loan, but FHA Loans have greater insurance premiums that better protect the Lender. More on that in #2.
For now remember this –
- Conventional Loan – the Lender pays the insurance premium – PMI(private mortgage insurance).
- FHA Loan – the Borrower pays the insurance premium – MIP(mortgage insurance premium).
Few things to clarify – FHA Borrower pay an annual MIP rolled into their mortgage payment. In addition, FHA Loan Borrowers pay an upfront insurance premium equal to 1.75% of the loan, paid at closing.
Pretty cool right? Well you might not think so just yet. Let’s look at point #2 and decide then.
#2. Is it true I can qualify for an FHA Mortgage Loan with a less than perfect Credit Score?
Yeah, you betcha! Having a poor credit score is not a deal breaker, although the better your score the easier it is to attract Lenders. At the least, check your latest Credit Score to know where you stand. Here is our partner site if you need it quick. Go Here >
Being protected by the MIP allows the Lender to loosen the strict Loan factors that you will find in a conventional Mortgage Loan. FHA Mortgage Loan benefits may include:
- Borrowers can qualify for FHA loans with credit scores of 580 and lower
- Wiggle room for debt-to-income ratios
- Minimum down payment of 3.5%
That last one brings us to the 3rd point.
#3. Down Payments with FHA Mortgage Loans
While obtaining a mortgage, it’s important that you find a loan that fits your specific situation and goals. However, small down-payments are usually a deal-breaker for Lender. With FHA Loans that’s not always the case. FHA Loans allow the Borrower to offer 3.5% of the loan amount as down-payment (compared to 5% – 20% for conventional mortgage loan).
Let’s do the math – with a less than perfect credit score on a $200,000 conventional Loan, you could be making a down-payment of around 10% or $20,000! With an FHA Loan on the other hand, an amazing credit score isn’t required and at 3.5% of $200,000 you would be paying $7,000 in down-payment.
You decide what type of Loan fits your Financial Profile. And don’t forget there’s always FHA Refinancing.
That concludes this weeks post. If you’ve read the entire post you’re a Rock Star, and if you didn’t; well I think we all know what kind of person skips to the end.
Stay thirsty my friends