Galaxy Lending Group provides you with everything you need to know about FHA Loans.
When it comes to your finances, and something as important as your mortgage, we know it’s not something you take lightly. The mortgage company you choose matters. We want you to know what is important to us, too… that’s you.
The Facts About FHA Loans:
What Are FHA Loans?
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments.
The FHA program was created in response to the rash of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with adequate insurance; and to help stimulate the housing market by making loans accessible and affordable. Nowadays, FHA loans are very popular, especially with first-time home buyers.Learn More
Benefits of FHA Loans
Easier to Qualify
While most loans exclude applicants with questionable credit history and low credit scores, the FHA makes loans available with lower requirements so its easier for you to qualify.
Competitive Interest Rates
You've heard the horror stories of subprime borrowers who couldn't keep up with their mortgage interest rates. Well, FHA loans usually offer lower interest rates to help homeowners afford housing payments.
In addition to lower interest rates, you can also enjoy lower costs on other fees like closing costs, mortgage insurance and others.
You May Still Qualify...
People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan. As long as you meet other requirements that satisfy the FHA, you can still qualify.
Check Your Eligibility for a FHA Loan
Some of the requirements that qualify you for a FHA Loan include, but are not limited to:
New FHA loans are only available for primary residence occupancy.
Must have a property appraisal from a FHA-approved appraiser.
Minimum credit score of 580 for maximum financing with a minimum down payment of 3.5 percent.
Minimum credit score of 500-579 for maximum LTV of 90 percent with a minimum down payment of 10 percent.
Your front-end ratio (mortgage payment plus HOA fees, property taxes, mortgage insurance, home insurance) needs to be less than 31 percent of your gross income.
Your back-end ratio (mortgage plus all your monthly debt, i.e., credit card payment, car payment, student loans, etc.) needs to be less than 43 percent of your gross income.
Must have a steady employment history or worked for the same employer for the past two years. Must have a valid Social Security number, lawful residency in the U.S. and be of legal age to sign a mortgage in your state.
FHA loan requires that a property meet certain minimum standards at appraisal.
Down Payment Requirements for a FHA Loan
One of the greatest benefits of an FHA loan is the low 3.5% downpayment, which is much lower than other mortgage programs. Typically, conventional mortgages require no less than a 5% downpayment and can be as high as 20%.
As an example, if you’re buying a $200,000 house, a private loan will require no less than 5% down, or $10,000o, which is a best case scenario. If you get an FHA loan your down payment will be 3.5%, which is $7,000 for a home costing $200,000.
About Closing Costs for a FHA Loan
Like any home loan, FHA mortgages will have closing costs. These fees include origination fees, home appraisals, title insurance, and more. Typically, FHA closing costs amount to 2%-5% of the purchase price depending on the lender you use.
You should always compare loan offers from multiple FHA lenders to make sure you’re getting the most competitive rates and lowest fees.