Low down payment requirement and relatively less stringent borrowing process make FHA loans quite popular among people looking to buy a new home or altering existing premises.
A big positive about an FHA Loan is that the mortgage is insured by The Federal Housing Administration, and hence the lender’s interests are protected in case of a default by the borrower.
Since FHA loans are insured, lenders offer interest rates that are quite attractive. Even the process is simple as qualification requirements are less stringent.
Here are a few facts about FHA Loans
Simple Eligibility Criteria
To become eligible for an FHA loan with a low down payment, normally 3 to 3.5 percent, a credit score of 580 or higher is required. Those with credit scores between 500 and 579 may have to shell out down payments of 10 percent or even higher.
A mortgage with down payment of 3.5 percent is an incredibly attractive offer. Isn’t it? This can easily be met out of your savings. Additionally, you can seek down payment assistance from state government, if eligible for such a grant.
FHA does not lend. It only insures the mortgage loans offered by approved lenders. You need to scout for the offer that meets your requirements as interest rates and other costs offered by lenders vary.
Upfront Mortgage Insurance Premium
You need to pay an upfront mortgage insurance premium of 1.75 percent of the loan amount while getting an FHA loan. Additionally, you have to pay an annual premium (this is normally paid monthly) of 0.45 – 0.85 percent of the loan amount. The slabs will be based on the down payment made and the tenure of the loan.
Availability of Additional Funds
Besides lending for buying a home, extra cash is available, if required, under an FHA Loan, to meet expenses towards non-structural repairs that include painting and furniture replacements.
Relief At Difficult times
Under FHA loan, a borrower can get some relief in the form of reduced interest rate or longer loan duration at no extra cost, if his financial position has suddenly turned worrisome.
FHA Loans Take Care of Closing Costs
Since the mortgage is insured by FHA, lenders may agree to pay certain closing costs like appraisal fee, credit report charges and title expenses, as an incentive to buyers of a new home.
However, some lenders may charge a higher interest rate if they agree to pay closing costs. It makes sense to compare loan estimates from different lenders before making your choice.
HECM Program For Senior Citizens
Homeowners aged 62 or above looking for retirement income, can go in for FHA Home Equity Conversion Mortgage program. This is possible through conversion of the loan into ‘reverse mortgage’ if the home is self-occupied and the remaining loan balance is low.
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