Just a few FHA loan facts you need to know… Background: A few years ago, the FHA home loans were appealing only to those homebuyers who had a low income. However, since the boom of housing and property finance in 2008, the FHA home loan program became a very common way to finance properties for people from different financial backgrounds.
Presently, FHA mortgages can appeal to people who do not qualify for the conventional home loans. There are some pros of the FHA loans, like you have to pay much less and you have the ability to own a house. However, you need to be cautious because there are some recent changes, which have made these loans more expensive than before. Basically, there are seven FHA facts people need to beware of before getting into it:
Although the name suggests that the Federal government is funding the loan, it is not. Private lenders are funding it and the FHA is simply insuring it. This means that when people take a mortgage and are unable to pay on time, the FHA reimburses the mortgage company or bank to compensate their loss.
Most people have the misconception that FHA mortgages only suit a few homebuyers, and are not ideal for everyone. The truth is that you can use the loans for several other needs, which include refinancing and home purchases. You will have the option to choose between ARM and FRM (adjustable-rate mortgage and fixed-rate mortgage).
People can buy a condominium or house with a down payment that is much less, like 3.5%. It doesn’t have to be 20% of the actual purchase price, as it is in most cases.
(READ: FHA Loan Requirements and Myths)
Traditionally, people with a damaged credit score don’t qualify for a loan, but the FHA program is quite forgiving and willing to help.
The FHA 203(K) loan is a very special offer because it can cover the cost of renovations and repairs you need for your house. This helps a lot when people make a down payment and don’t have extra money to renovate and repair.
One advantage with the FHA home loan is that you will not have to bear additional expenses like the loan origination fees, appraisal cost, and attorney fees. According to FHA regulations, the seller will also pay some of these costs for you. Assuming the selling is not being able to find a buyer, he or she can offer this assistance to sweeten the deal.
In recent years, the cost of buying a house has increased, which is why loans have become more expensive as compared to conventional loans. A private loan is much cheaper than conventional loans. Annual PMI is typically 0.3-1.15%, and there is no upfront fee.
FHA home loans are flexible and can help in many positive ways; there is nothing to worry with them on your side.