FHA loans are mortgages that are insured by the Federal Housing Administration and are a great option for applicants who have less than perfect credit, higher debt-to-income ratios or smaller down payments. FHA loans are very popular with first time home buyers and can be used with a home purchase or a refinance. FHA loans receive very low interest rates, however, they have a set amount of mortgage insurance, and unlike conventional loans, there is no risk based pricing model. Regardless of whether your credit score is 650 or 800, FHA loans deliver the same interest rates and mortgage insurance premiums. The risk is mitigated by the consistent mortgage insurance premiums that are collected across the board. FHA continuously strives to achieve a balance of meeting the housing needs of those borrowers who otherwise wouldn’t be able to purchase without the product, and the risk associated with extending financing.
FHA loans have two different types of mortgage insurance and it is important to understand the difference between the two. A mandatory monthly mortgage insurance premium is collected and included in a fully escrowed monthly payment that includes principle, interest, property taxes, and home insurance. Escrows are required on all FHA loans, regardless of down payment percentage. Additionally, an Up Front Mortgage Insurance Premium (UFMIP) is collected and can either be paid up front or financed over the life of the loan. The two factors that determine the amounts for these mortgage insurance premiums are the combination of down payment and loan term. The lower the loan to value and term, the lower the premium will be. For example, a loan term of 15 years will receive a slightly lower premium than one of 30.
Similar to conventional loans, FHA loans can be used in conjunction with other products. One such product is the FHA 203K Renovation Loan. This loan comes in two varieties, one known as a Streamline 203 K and the other known as a Full 203 K. While there are various differences between these loans, the most significant difference is that the Full 203 K Loan allows for structural repairs, while the Streamline only allows for cosmetic repairs. You can reach more about these loans in the Renovation Tab at the top of the page. These loans are great tools to make repairs or renovations.
Energy Efficient Mortgages (EEM) are federally recognized and provide the borrower with special benefits when purchasing a home that is energy efficient or can be made more energy efficient by the installation of energy saving improvements such as windows, doors, and insulation. EEM’s allow cost effective, energy saving measures to be financed within the first lien FHA mortgage.
FHA loans are a phenomenal tool for homebuyers who either don't have perfect credit and a large down payment, or who have some concerns about documenting income and pushing their qualifying ratios higher than the norm. Contact The Hargrave Group to determine whether an FHA Loan is right for you.