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What is FHA?
FHA stands for the Federal Housing Administration which is a division of the Housing and Urban Development (BUD) department of the Federal Government.
HUD was created to stimulate affordable housing financing to qualified borrowers.
What is an FHA Loan?
Lenders would ordinarily ask for a down payment of at least 20% of the purchase price. If a lender makes a loan with less of a down payment, the lender must have (a) some type of mortgage insurance or (b) some kind of a government guarantee. In an FHA loan, the funds come from the lender, the FHA provides the mortgage insurance.
What is the Advantage of an FHA Loan?
The main advantage of an FHA-insured loan is that you can buy a home with a very low down payment. Within some limits, a portion of the closing costs might be financed. The borrower's contribution will be at least 3% of the purchase price.
Lower down payment requirements help to make housing more affordable for many buyers.
Beyond the Down Payment, do I need Additional Cash?
Additional funds will be needed for closing costs (a portion of them might be financed), for prepaid interest adjustments and for escrow (tax and insurance) deposits.
Are There Other Advantages to FHA Financing?
FHA's guidelines would be more flexible on the sources of cash for the down payment and closing costs. For instance a gift from a relative, close friend or employer could be the source of the required funds. FHA's income guidelines are also a little more liberal when compared to conventional loan guidelines (e.g. You might qualify with higher monthly payments.)
Who Pays for the FHA Mortgage Insurance?
FHA mortgage insurance is usually a cost to be paid by the Borrower.
- There is an up-front fee that can be financed - added right on to the loan request, and it does not have to be paid in cash.
- There is also an annual fee which is collected along with each monthly payment.
Not any more. A few years back, much of the paperwork and the approval process was handled at regional FHA offices. But FHA has delegated much of the responsibility for loan approval to designated lenders.
A lender such as AmeriFirst Financial who participates in FHA's "Direct Endorsement" program, can close an FHA loan in the same amount of time as a conventional loan.
What are Points?
A "point" on FHA loans, more properly call a "discount point," is a fee of 1% of the original loan balance, paid at closing, to lower the borrower's interest rate.
FHA "deregulated" interest rates and points and AmeriFirst Financial always offers an interest rate where no additional discount points are required. If the borrower wishes to have a lower rate, either the borrower or seller can pay the optional discount points.
Does the FHA Require Repair's?
FHA has some property guidelines. Most homes that have been well maintained may not require any repairs. But repairs might be necessary to insure the health, safety and structural soundness of the home. If there are repairs, the costs are negotiable between the seller and the buyer and should be clarified in the purchase agreement. Repairs must be completed prior to closing.
Do I Have to be a First Time Buyer?
No. One of the advantages to FHA is the low down payments, so the program is used more often by first time buyers. But the program can be used by anyone, and it can be used more than once.
Are There any Income Limitations?
No. Your annual income does not have to be under or over a certain amount before you can qualify for an FHA loan. You must be financially able to meet the monthly payments and have a credit rating which shows that you are financially responsible.
FHA does have some limits on the maximum loan amounts depending upon the area in which the home is located.
Will Sellers Object to FHA Financing?
They shouldn't anymore. There are three old myths: that FHA loans take a long time, that the seller has to pay discount points, and that FHA might require excessive repairs. That is not the case anymore.
Call Gordon Cornwell at AmeriFirst Financial for Residential Mortgages at...
local: (231) 946-0320 :: toll free: (800) 442-9833
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Gordon Cornwell
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