Ten Things You Need to Know About FHA Loans

1. What is an FHA Loan? An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development. These loans are designed to make homeownership more accessible, especially for first-time buyers or those with lower credit scores.

2. Lower Down Payment Requirements: One of the most attractive features of FHA loans is the lower down payment requirement. Borrowers with a credit score of 580 or higher can qualify for an FHA loan with a down payment as low as 3.5%. Those with credit scores between 500 and 579 may still qualify but will need to make a 10% down payment.

3. Flexible Credit Score Requirements: FHA loans are more forgiving when it comes to credit scores. While conventional loans typically require higher credit scores, FHA loans allow for lower scores, making them a viable option for those with less-than-perfect credit.

4. Mortgage Insurance Premiums (MIP)All FHA loans require mortgage insurance premiums (MIP). There are two types of MIP:

• Upfront Mortgage Insurance Premium (UFMIP): This is a one-time payment made at the time of closing. It is typically 1.75% of the base loan amount. Borrowers can either pay this amount in full at closing or finance it into the loan.
• Annual Mortgage Insurance Premium (MIP): This is an ongoing payment made monthly as part of your mortgage payment. The annual MIP can range from 0.45% to 1.05% of the loan amount, depending on factors such as the loan term and the loan-to-value (LTV) ratio. The duration for which you pay the annual MIP depends on the loan term and LTV ratio. For example, if your loan term is more than 15 years and your LTV is greater than 90%, you will pay the MIP for the entire loan term.

5. Property Requirements: The property being purchased with an FHA loan must meet certain health and safety standards. This means the home must undergo an FHA appraisal to ensure it meets these requirements. This can include things like structural soundness, proper heating, and adequate roofing.

6. Loan Limits: FHA loans have limits on the amount you can borrow, which vary by location. These limits are based on the median home prices in the area and are updated annually. It’s important to check the current limits for your area when considering an FHA loan.

7. Assumable Loans: FHA loans are assumable, which means that if you sell your home, the buyer can take over your existing FHA loan. This can be an attractive feature for buyers, especially if interest rates have risen since you took out the loan.

8. No Prepayment Penalties: FHA loans do not have prepayment penalties, so you can pay off your loan early without incurring additional fees. This can be beneficial if you come into extra money or want to refinance to a different loan type.

9. Types of FHA Loans: There are several types of FHA loans available, including fixed-rate loans, adjustable-rate mortgages (ARMs), and loans for specific purposes like home improvement (203(k) loans) or energy efficiency upgrades (Energy Efficient Mortgages).

10. Eligibility Requirements: To qualify for an FHA loan, you must meet certain eligibility requirements, including having a steady employment history, a valid Social Security number, and lawful residency in the U.S. Additionally, the home must be your primary residence, and you must move in within 60 days of closing.

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If you want more detailed information or an FHA quote, email @ info@purerate.com or www.purerate.com/rates

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