These loans are government-backed through the Federal Housing Administration (FHA). They also allow for the smallest down payment of all loans, 3-3.5% or even no down payment when utilizing a down payment assistance program. The county loan limits will determine how much you can borrow. You can find your county loan limits depending on where in California the property is located here. (Arizona Loan Limits Here) (also required is mortgage insurance, which is around 1% of the loan amount). FHA loans are an incredible option for borrowers with a lower credit score and low down payment.
FHA Loan: Is it right for you?
Is an FHA Loan right for you? Here is what you need to know! Whether it be a purchase or refinance or even renovation, you can utilize an FHA program. Using a government program has its pros and cons. These include costs, interest rate, down payment and more. Let us help you find out if FHA financing is right for
When considering FHA financing, a borrower has to keep a number of things in mind.
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First, The pros of using an FHA loan:
- Loan to value:
- FHA financing can be used for loans up to 100% financing with the use of a DPA (down payment assistance program). This can also include the financing of ALL closing costs and fees. The DPA program utilizes a second position loan that can be forgivable or payable. The structure would show as an FHA loan of up to 96.5% loan and the DPA loan for the remaining up to 105% loan to value.
- Interest rate:
- The interest rate is typically lower than a conventional loan due to the it being backed by the government.
- Easier to qualify:
- An FHA loan has more relaxed qualifications and is typically utilized by those who may not have the income or credit scores/history to qualify for conventional financing.
Second, the cons of using an FHA loan:
- Mortgage Insurance:
- FHA loans have an additional requirement, mortgage insurance! Mortgage insurance is an additional monthly fee added to your monthly payment. In addition, it is attached to the loan for the life of the loan unless refinanced or paid off.
- Furthermore, once the loan to value has reached 80%, with a conventional loan, the mortgage insurance would be removed. In contrast, with FHA, the mortgage insurance never drops off as long as the loan is in place.
- Upfront Fee:
- The upfront mortgage insurance premium (UFMIP) on an FHA loan is 1.75% financed into the loan amount.
- The annual mortgage insurance premium ranges from 0.45% to 1.05% of your loan amount, depending on certain criteria. This premium is added to the monthly payment.
- Property restrictions:
- FHA financed properties have to be HUD approved. Furthermore, if the property is in a condo development, the whole development has to be approved or at least 50% owner occupied.
Finally, rehab financing. Yes, FHA has a rehab or ground up construction program available to qualifying borrowers.
FHA 203k renovation loan:
A rehab loan gives borrowers the ability to roll the renovation costs of a property into the loan amount. This is great for borrowers that are wanting to buy a house and make it their own or need to bring the property up to FHA standards for finance requirements.
FHA construction loan:
The FHA construction loan is a product that allows qualifying borrowers to use financing funds to purchase a lot, do all of the lot improvements and construct the house. The best part of this loan is once the construction is completed, the loan rolls right into a 30 year fixed loan without having to qualify again. It is one loan that encompasses all phases into one loan!