An FHA mortgage loan is a special loan product that is insured by the Federal Government, via the HUD (U.S. Department of Housing and Urban Development). These types of loans can be found with many lenders, but the lenders do have to be FHA approved to provide these types of loans. The key feature of an FHA loan is reduced down payment requirements, as well as allowances for borrowers with lower income. Another big benefit of FHA loans is that you can often roll the closing costs associated with the loan into the loan itself, without having to come up with the cash yourself. Certainly, if you are buying a home and are able to negotiate the closing costs to be covered by the seller, that is a good option as well. Talk with your realtor about this, as they will be able to strategize with you about how to accomplish this.
FHA loans require a down payment of 3.5% of the purchase price for a new loan, or a loan to value ratio (LTV) of no more than 96.5% on a refinance. This can be a significant savings as many other loans require 5%-10% down!
FHA mortgage loans do incorporate PMI, and often have an up front “prepaid MI” or “Funding Fee.” To find out more about PMI, click HERE.
Because an FHA loan is insured by the Federal Government, there are some different underwriting guidelines and documentation requirements that come along with it. However, despite these added layers, the overall program makes buying or financing a home far more accessible to many Americans. If you’re looking to buy or finance a home with less money down, lower PMI payments, and with perhaps reduced income or credit requirements, then an FHA home loan could be exactly what you need!
If you would like to talk with a home loan specialist, please fill out the form to the right and we’ll put you in touch with a lender or broker who can help you get started on your way to getting a home loan!