Federal Housing Administration (FHA) loans offer flexible underwriting guidelines, helping more borrowers qualify. If you’re considering the purchase of a home, you probably have questions about what loan program will best fit your individual needs and goals. FHA loans are a popular option as qualifying criteria, like credit, income and down payment requirements, are more accommodating than conventional programs.
Penrith Home Loans sales manager and mortgage consultant Cliff Taylor is an expert when it comes to FHA financing. He’s outlined the basics of what you need to know when considering an FHA loan.
What are the top benefits of FHA loan programs?
FHA provides an option to finance with as little as 3.5% down and can be more understanding to a below average credit history or a credit score down to 580. You can also finance a home just 2 years after a bankruptcy when conventional loans require a seasoning up to 4 years.
Who is the ideal client for FHA loans?
Although you don’t have to be purchasing your first home, first time homebuyers with limited access to down payment funds tend to be good candidates for FHA financing. FHA is a prominent method of financing a manufactured home on land and allows 100% of your cash to close to come as a gift from a relative.
What is the minimum qualifying criteria for FHA loans?
The minimum credit score for FHA is 580. A buyer should keep in mind that the underwriting process can be a little more detailed if their score is below 620-640.
Is mortgage insurance required on FHA loans? For how long?
Yes, FHA charges an upfront mortgage insurance fee that they allow you to finance (add to your loan) and they also charge monthly mortgage insurance premium within your house payment. The upfront fee is 1.75% and the monthly fee is calculated based on a .85% factor (Loan Amount X .85% divided by 12 months). The mortgage insurance on a FHA loan is for the life of the loan.
When and why should a borrower consider FHA loan products?
FHA pricing and mortgage insurance payment calculations are less sensitive to your credit score. So a buyer with average or below average scores (let’s say less than 700) will find their monthly payment to be less than the comparable 3-5% down conventional option.
Are there any disadvantages of choosing an FHA loan program?
It’s believed that an FHA appraiser will be more critical about the condition of the property you are buying, but the main disadvantage is that the mortgage insurance payments don’t drop off when your balance gets down to 80% or less than what your property appraised for when you purchased it. Conventional financing contains that benefit.
How do FHA rates compare to conventional rates?
FHA interest rates tend to be slightly less than conventional loans and can be quite a bit less for a borrower with below average credit scores.
What are the limitations of using an FHA loan program?
FHA loans can only be used for an owner occupant (no investors). FHA also has maximum loan amount limits per county than can be far less than the conforming limits associated with conventional financing.
FHA Loan Overview
FHA loans are one type of government loan intended to assist more homebuyers in qualifying for a mortgage. While secured by the Federal Housing Administration, FHA loans require monthly mortgage insurance premiums paid by the borrower that protect the lender in the case of default. FHA loans provide more flexible qualifying criteria, like credit and income requirements, than other loan programs. Additionally, this loan type permits small down payments, making it an appealing option for many homebuyers. At Penrith, we offer a variety of loan programs to help meet your needs. You can learn more about our products and programs here.
About Cliff: Cliff has been part of the Penrith team for over 20 years and brings a wealth of knowledge and experience to each client he serves. Holding positions as a mortgage consultant, sales manager and production manager, he has the expertise to close loans smoothly. When Cliff isn’t hard at work assisting his clients and business partners, you’ll find him golfing, fishing, boating and spending time with his children and grandchildren. Learn more about Cliff here.