Contact us at Best FHA Lender today to with any questions or comments or to get started with your FHA loan application. Use the contact form on the left-hand side of the site, email me at slines@bestfhalender.com or call me at 480-344-3662.
There are lots of good reasons to choose an FHA morgage, especially if one or more of the following apply to you:
• You’re a first-time homebuyer.
• You don’t have a lot of money to put down on a house.
• You want to keep your monthly payments as low as possible.
• You’re worried about your monthly payments going up.
• You’re worried about qualifying for a morgage.
• You don’t have perfect credit.
If any of these things describe you, then an FHA morgage may be right for you. Why? FHA morgages offer many benefits and a level of security that you won’t find in other morgages including:
Low cost: FHA morgages have competitive interest rates because the federal government insures the morgages for lenders.
Smaller downpayment: FHA morgages have a low 3% downpayment and the money can come from a family member, employer or charitable organization as a gift.
Easier qualification: Because FHA insures your morgage, lenders may be more willing to give you morgage terms that make it easier for you to qualify.
Less than perfect credit: You don’t have to have perfect credit to get an FHA morgage. In fact, even if you have had credit problems, such as a bankruptcy, it’s easier for you to qualify for an FHA morgage than a conventional morgage.
More protection to keep your home: The FHA has been helping people since 1934. Should you encounter hard times after buying your home, the FHA has many options to keep you in your home and avoid foreclosure.
FHA insures morgages for lenders against defaults – it does not lend money or set interest rates. For the best interest rate and terms on a morgage, you should compare morgages from several different lenders. An FHA-approved lender can help you start the morgage application process.
You may use an FHA morgage to purchase or refinance a new or existing 1- to 4-unit home, a condominium or a manufactured or mobile home (provided it is on a permanent foundation).
What kinds of morgages does FHA offer?
Fixed-rate morgages – Most FHA morgages are fixed-rate morgages (morgages). The advantage of a fixed-rate morgage is that your interest rate stays the same during the morgage period, so you know exactly how much your monthly payment will be.
Adjustable rate morgages – Most first-time homebuyers are a little stretched financially. With FHA’s adjustable rate morgage (ARM), the initial interest rate and monthly payments are low, but these may change during the life of the morgage. FHA uses the 1-Year Constant Maturity Treasury Index (CMT) to calculate the changes in interest rates. An index is a measure of interest rate changes that determine how much the interest rate on an ARM will change over time.
The maximum amount that the interest rate on your morgage may increase or decrease in any one year is 1 or 2 percentage points, depending upon the type of ARM you choose. Over the life of the morgage, the maximum interest rate change is 5 or 6 percentage points from the initial rate. The advantage of selecting an ARM is that you may be able to expand your house-hunting value range because your initial interest rate will be low, as will your payment.
Purchase/rehabilitation morgages – Sometimes you might see a home you’d like to buy, but it needs a lot of work. FHA has a morgage for rehabilitating and repairing single-family properties called the SF Rehabilitation Morgage program (203k). You can get one morgage which combines the morgage and the cost of repairs. The morgage amount is based on the projected value of the property with the work completed. The advantage of this morgage is that you can buy a home that needs a lot of work, but have only one morgage payment, and you can complete the repairs after buying the home.
Indian Reservations and Other Restricted Lands – A family who purchases a home under this program can apply for financing through an FHA-approved lending institution such as a bank, savings and morgage, or a morgage company. To qualify, the borrower must meet standard FHA credit qualifications. An eligible borrower can receive approximately 97% financing and use a gift for the downpayment. Closing cost can be financed; covered by a gift, grant or secondary financing; or paid by the seller without reduction in value.
How do FHA morgages compare to subprime morgages?
Subprime morgages are morgages designed for homebuyers who don’t have a strong credit history or can’t qualify for a regular or prime morgage. Lenders charge a high interest rate on subprime morgages because the risk that a homebuyer may not make their payments is high. Because FHA insures the lender against this risk, the interest rates on FHA morgages are generally among the lowest in the market. Most subprime morgages carry interest rates at least 3 percentage points higher than an FHA morgage. On a $100,000 morgage, the monthly payment for a subprime morgage would be over $200 a month higher than an FHA morgage.
The majority of subprime morgages are also ARMs, where the interest rate can change a lot and greatly increase your monthly payments. Most FHA morgages are fixed-rate morgages where the morgage payment always stays the same. If you have an FHA ARM morgage, the rate can’t go up by more than one or two points in a year. The fees that lenders charge their borrowers for processing a subprime morgage are also generally higher than on an FHA morgage.
Most subprime morgages carry a heavy prepayment penalty that you must pay if you want to refinance your morgage to a lower interest rate. These penalties can cost you hundreds or even thousands of dollars. There is never a prepayment penalty on an FHA morgage. You can refinance at any time and not worry about paying any penalties.
Unfortunately, because they don’t know these facts, many homebuyers who could qualify to buy a home with a fixed-rate FHA morgage only apply for subprime morgages. Check out an FHA morgage before settling for a subprime morgage!
How do FHA morgages compare to conventional morgages?
Conventional morgages usually require a larger downpayment than FHA and if you have less than perfect credit you may not qualify for an affordable morgage with a low interest rate . The best thing to do is compare the cost of the conventional morgage to an FHA morgage line-by-line. What are the fees for each? What is the interest rate? How much is the morgage insurance? How much downpayment is required? For some borrowers, a conventional morgage may be less expensive. For many others, getting an FHA morgage is the way to go.
Do you have to buy morgage insurance on an FHA morgage?
Yes – as you will with most morgages. There is an up front morgage insurance premium equal to 1.5% of the morgage amount that is paid at settlement. In most cases, this morgage insurance premium is included in your morgage amount, so you are really paying it over the life of the morgage. In addition, on morgages with a term of greater than 15 years and a morgage-to-value ratio of 90% or greater (meaning you are borrowing more than 90% of the value of the home), you will pay an annual morgage insurance premium of 0.5% of the morgage amount in monthly installments.
Most morgages require morgage insurance when your downpayment is less than 20% of the sales price. On conventional and subprime morgages, morgage insurance is provided by private companies. Whether private morgage insurance is less than, equal to, or more than an FHA morgage’s insurance will depend upon the morgage program and your qualifications.
Compare the cost of FHA to subprime and conventional types of morgages over the life of your morgage . Then compare how much each costs monthly. With the protection and value you get from FHA – it’s a very good deal.
Contact us at Best FHA Lender today to with any questions or comments or to get started with your FHA loan application. Use the contact form on the left-hand side of the site, email me at slines@bestfhalender.com or call me at 480-344-3662.
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The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are
Throughout my lending career, I have been known for my knowledge, experience, honesty and integrity. I hold my mortgage and accounting experience in high regard. I have been involved in the real estate finance industry since 1996 when I took my first job as a loan office.
