3.5% Down FHA Loan

The Federal Housing Administration (FHA) is an agency under the Department of Housing and Urban Development (HUD). The FHA itself does not offer loans, but it insures mortgages against losses to give lenders or banks more confidence in making high risk loans. FHA loans are designed to help prospective homeowners who can't qualify for conventional mortgages.

Why use FHA Home Loan?

FHA home loan allows low down payment of 3.5%. The remainder of the 96.5% can be finance with a FHA loan provider for a 15 year or 30 year fixed rate mortgage.

FHA home loans generally offer more favorable interest rates than conventional loans. However, interest rates are determined by factors, such as property types, the credit score of borrowers, and loan to value ratio.

FHA will insure loans on residential properties such as single family, approved condominiums, and multifamily (1-4 units). Which means you can buy a 2-, 3- or 4-unit property, live in one and rent out the other units for income to help with your mortgage.

FHA allows co-signers (related parties) and down payment gifts. There are no income limits or restrictions.

FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan.

FHA Loan Limits for the State of Hawaii by County

What else do you need to know about a FHA home loan?

There are two types of insurance that borrowers should be aware of if their down payment is less than 20% of the purchase price.

On a 30 year term loan, there is an upfront mortgage Insurance premium of 1% of the loan amount. This premium can be financed and be added to as part of the loan.

The second insurance is the monthly mortgage insurance premium (MIP). The current MIP rate is 1.10% to 1.15%, which is an addition to the monthly payments, making monthly payment more costly.

FHA Home Loan Eligibility

Contrary to popular belief, FHA loan is not only for first-time home buyers.

FHA guidelines require you to establish occupancy within 60 days of buying the home. Failure to meet the residency requirements, you could end up being prosecuted for fraud or FHA could accelerate your loan to make you pay off the remaining loan balance in full.

FHA guidelines allow a maximum debt-to-income ratio of 43 percent and a minimum credit score of 580 is required for FHA loan approval. FHA loans may also be approved with lower credit scores if other compensating factors exist.

Related article: Repair and Improve Your Credit Score

Is an FHA Home Loan for you?

To find out if an FHA home loan works best for your situation, you should shop around for other mortgage products on the market today with an experienced mortgage provider. Other mortgage alternatives, besides conventional mortgages, include
USDA (U. S. Department of Agriculture Rural Development) home loans or VA (Veterans Administration) home loans.