June 18th, 2017 10:31 AM by Jackie A. Graves
rigorous lending standards and lower down-payment requirements make FHA loans
popular with mortgage borrowers.
An FHA loan is a mortgage insured by the Federal Housing
Administration. Borrowers with FHA loans pay for mortgage insurance, which
protects the lender from a loss if the borrower defaults on the loan.
of that insurance, lenders can -- and do -- offer FHA loans at attractive
interest rates and with less stringent and more flexible qualification
requirements. The FHA is an agency within the U.S. Department of Housing and
are seven facts that borrowers should know about FHA loans.
credit scores for FHA loans depend on the type of loan the borrower needs. To
get a mortgage with a down payment as low as 3.5 percent, the borrower needs a
credit score of 580 or higher.
with credit scores between 500 and 579 must make down payments of at least 10
with credit scores under 500 generally are ineligible for FHA loans. The FHA
will make allowances under certain circumstances for applicants who have what
it calls "nontraditional credit history or insufficient credit" if
they meet requirements. Ask your FHA lender or an FHA loan specialist if you
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most borrowers, the FHA requires a down payment of just 3.5 percent of the
purchase price of the home. That's a "huge attraction," says Dennis
Geist, senior director of compliance and fair lending at Treliant Risk Advisors
and formerly a vice president of government programs for another lender. In
late 2014, Fannie Mae and Freddie Mac reduced minimum down payments to 3 percent
from 10 percent, but such loans have limited availability.
borrowers can use their own savings to make the down payment. But other allowed
sources of cash include a gift from a family member or a grant from a state or
local government down-payment assistance program.
FHA allows home sellers, builders and lenders to pay some of the borrower's
closing costs, such as an appraisal, credit report or title expenses. For
example, a builder might offer to pay closing costs as an incentive for the
borrower to buy a new home.
typically charge a higher interest rate on the loan if they agree to pay
closing costs. Borrowers can compare loan estimates from competing lenders to
figure out which option makes the most sense.
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the FHA is not a lender, but rather an insurer, borrowers need to get their
loan through an FHA-approved lender (as opposed to directly from the FHA). Not
all FHA-approved lenders offer the same interest rate and costs -- even on the
same FHA loan.
services and underwriting standards will vary among lenders or mortgage
brokers, so it's important for borrowers to shop around.
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mortgage insurance premiums are required on all FHA loans: The upfront premium
is 1.75 percent of the loan amount -- $1,750 for a $100,000 loan. This upfront
premium is paid when the borrower gets the loan. It can be financed as part of
the loan amount.
second is called the annual premium, although it is paid monthly. It varies
based on the length of the loan, the loan amount and the initial loan-to-value
ratio, or LTV. The following premiums are for loans of $625,500 or less.
30-year loan, down payment (or equity) of less than 5 percent: 0.85
30-year loan, down payment (or equity) of 5 percent or more: 0.80
15-year loan, down payment (or equity) of less than 10 percent: 0.70
15-year loan, down payment (or equity) of 10 percent or more: 0.45
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FHA has a special loan product for borrowers who need extra cash to make
repairs to their homes. The chief advantage of this type of loan, called a
203(k), is that the loan amount is not based on the current appraised value of
the home, but on the projected value after the repairs are completed.
so-called "streamlined" 203(k) allows the borrower to finance up to
$35,000 for nonstructural repairs, such as painting and replacing cabinets or
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course, FHA insurance isn't supposed to be an easy out for borrowers who are
unhappy about their mortgage payments.
loan servicers can offer some relief to borrowers who have an FHA-insured loan,
have suffered a serious financial hardship or are struggling to make their
payments. That relief might be in the form of a temporary period of
forbearance, a loan modification that would lower the interest rate or extend
the payback period or a deferral of part of the loan balance at no interest.
By Marcie Geffner - To view the original article click here