FHA 3.5 - The Basics
Updated: Nov 21, 2019
FHA loans - named after the government institution that insures them, the Federal Housing Administration - are one of the more commonly used loan programs among US home-buyers today. By providing opportunities for borrowers who otherwise would not have a home loan option, it has become a standard for buyers in need of a low down payment or those with less-than-average credit. The FHA loan requires just 3.5% down with a credit score of at least 580, and allows borrowers to use “gift” funds to pay for the entire down payment.
In today’s housing market, where many first-time home-buyers have significant student loan debt, it is no wonder why people are turning more towards low-down options. However, the lower credit and down payment requirements are offset by additional premiums not included with conventional home loans. A 1.75% Upfront Mortgage Insurance Premium (paid at closing) and annual 0.45% to 1.05% Mortgage Insurance Premium (MIP) are both included on FHA loans. Unlike the conventional loan's Private Mortgage Insurance, which is automatically canceled at 78% loan-to-value (LTV) , FHA loans include a MIP throughout the life of the loan.
Weigh the benefits and drawbacks with consideration to your personal financial situation. Is now the right time to buy? Would it make more sense to wait and save for a larger down payment to avoid additional fees?
When you’re ready, give us a call. We’d be to discuss your options with you.
Rates, regulations, and loan conditions can and do change. The information presented in this article was accurate, to the writer’s knowledge, as of 9/12/2019.Consult your Sovereign Mortgage Investments Inc. advisor to see if rates, regulations, and loan conditions have changed.