At NEXA Mortgage, it’s our top priority to serve clients with the resources they need to ensure they’re able to get the home that they want. Fueled by years of industry knowledge combined with sophisticated expertise, we pride ourselves on acting as a leading resource for clients looking to explore which loan option best suits their needs.
FHA Home Loan (Federal Housing Administration)
Often compared to a Conventional Loan, A Federal Housing Administration (FHA) backed loan is a program operated through licensed lenders and insured by the federal government. Many first-time home buyers choose to finance their mortgages through FHA loans as they’re accompanied by some of the industry’s most flexible guidelines.
What is an FHA Loan?
As a government-insured lending program, Federal Housing Administration (FHA) backed loans offer home buyers an increase in flexibility that includes a lower down payment option and less restrictive requirements regarding their credit score. In fact, those in the initial stages of rebuilding their credit can actually benefit from their lower score as it can help to secure a 3.5% down payment, a rate associated with an FHA loan far below industry standard.
Who Best Qualifies for an FHA Loan?
As one of the least restrictive options for home buyers looking to qualify for a loan, FHA programs are common among first time home buyers as well as for those in the process of rebuilding their credit. Granting applicants with more forgiving application and approval requirements, it’s often relied upon by individuals who have previously filed for bankruptcy or foreclosure. It’s the generous flexibility associated with FHA requirements that make it possible to finance if you’re recovering from economic hardship.
Unlike more rigid lending programs, a lower FICO score doesn’t necessarily disqualify an applicant from being approved for an FHA loan. This may be one of the reasons why lenders often recommend these programs for homebuyers with less than favorable credit. Since rates are set up by the government and unimpacted by credit score, anyone who does get approved for an FHA loan falls under universal lending terms that apply to all qualifying home buyers at that specific time. Historically lower than Conventional loan programs, FHA loan options boast some of the industry’s lowest down payment programs. This can heavily favor home buyers looking to pay little upfront, lower initial payments and less expensive monthly plans.
Qualifying home buyers with a higher debt to income ratio may also find it advantageous to finance through an FHA backed loan. With flexible guidelines that offer allowances that wouldn’t typically be considered under other mortgage lending programs, there’s a greater likelihood of being approved for a higher valued asset through an FHA loan than through a Conventional one.
Costs Associated with a Conventional Home Loan
How much money do I have to put down?
The required down payment for an FHA loan can be as low as 3.5%.
Do I have to pay for mortgage insurance?
As mentioned, FHA loans are offered through lenders on behalf of the federal government who insures these funds. As one would expect, the government wants to make sure that if you are unable to make your payments and foreclose on your home, they’ll have protection against any money that’s lost in the transaction. That’s why, unlike other home loan programs, FHA options require a buyer to pay for mortgage insurance.
Mortgage Insurance (MI) operates through two payments, a monthly cost and an upfront mortgage insurance premium.
The premium is calculated off of the initial cost of your loan and charged 1.75%. You can choose to either pay this upfront at closing if you have the available funds, or have it rolled into your monthly mortgage payments.
The monthly mortgage payment is a reoccurring cost that remains unwavering throughout the duration of your loan Just like other FHA terms, a homebuyer’s credit score has no impact on the MI rate. Rather, its calculated off of: • Total cost of the loan • Duration of time the loan extends across • Total amount paid towards your down payment.
Can I have my monthly mortgage premium removed?
If you put 10% or more towards your down payment upfront, then your monthly mortgage payment will drop off after 11 years.
What Other Advantages do FHA Loans Offer?
Federal Housing Association backed loans grant home buyers unique opportunities unlike other lending options, further proving that the advantages of applying for an FHA loan aren’t limited just to the approval requirements. From permission to use a co-borrower to first time buyer assistance, these programs boast a wide variety of benefits that encourage prospective residents to finance their homes using loans insured by the government.
Family-Backed Financial Support Towards Down Payment
One of these benefits is the permission to accept up to the entire amount of your down payment and closing costs in the form of a gift received by a family member. This can be a highly beneficial for first time home buyers who aren’t financially established enough to cover such a large sum of money upfront.
Permission to Use a Co-Borrower,
You’re also permitted to apply with the company of co-borrower. Despite no intentions to reside at the property, this close friend or relative is allowed to leverage their credit and financial history to help you qualify for your mortgage.
Granted Access to an Underwriter
FHA’s flexibility even extends to the technology used when submitting your application. Rather than rely solely on algorithms to automatically generate approval through a computer, FHA loans grant underwriters permission to evaluate a home buyer’s application to determine whether or not they qualify. Not only does this offer a more human element to the process, but it broadens the guidelines and offers more flexibility for individuals who may not have the strongest credit or lending history.
FHA Home Loan Stipulations
While FHA loans offer attractive benefits, there are a few requirements that may have homebuyers considering an alternative loan program.
Mortgage Must Be for Financing Your Primary Residence
One of the main requirements is that the loan for which the home is being financed with, must be your primary residence. Rental assets and other types of properties do not qualify for an FHA loan.
Strict Appraisal Requirements
While these loans are fairly lenient with most requirements; the one thing they are stricter about are their property standards.
Since FHA loans are insured by the government, they are going to take health and safety standards more seriously. This means that prior to moving in, the property will be appraised for any broken windows, missing steps and other potentially harmful wear and tear. Should anything be deemed unfit with FHA health and safety standards, you’ll be required to make the necessary renovations before you’re allowed to move in.
Is an FHA Home Loan for You?
FHA loans are a great option to consider when financing your home. Whether you’re interested in applying for one, or simply want to learn more, we’re here to provide you with the information, so that you can get the home you want.
Contact us to talk with one of our dedicated agents who’s ready to help you take the first step to making your dream a reality