FHA - Federal Housing Administration - Loans
FHA – Federal Housing Administration – Loans
FHA - Federal Housing Administration - Loans are government loans insured and backed by the Federal Housing Administration. Where USDA loans have to be used for purchases in rural areas outside major cities, FHA loans can be used for purchasing in the heart of the city or in rural areas. When applying for an FHA loan, the lender will take your proof of income and past tax returns and determine how much you have coming in before taxes (Gross Income) minus what your paying out in monthly payments (installment payments) like credit cards, student loans, vehicle, etc. This will determine your Adjusted Gross Income which is what the lender will use to qualify you for financing.
Requirements:
- FHA loans require a 3.5% down payment. If you do not have the 3.5% down or only a portion of the down payment, they will loan you the 3.5% down through a second mortgage:
First Mortgage – loan to purchase the home
Second Mortgage – loan for the down payment
- Closing costs which is typically 3 - 4% of the purchase price. You also have the option to negotiate for seller to pay closing in your offer.
- Minimum Credit Score of 620
- PMI – Private Mortgage Insurance: This is an insurance policy on behalf of the lender put on you because the loan did not require 20% down payment. This is for the lender in the event you default on your loan. Therefore the lender passes the monthly premium to you (the borrower) as part of your monthly mortgage payment. It is not crazy expensive, however the PMI remains for the life of the loan. The only way to remove your PMI premium is to refinance with a conventional loan after you have 20% equity built up at the time of refinance.
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