FHA Loans

The FHA Loan is an awesome option for both the first time home buyer and the buyer that is looking to upgrade or relocate to a different property. This loan is for primary residence purpose only. The FHA loan has some Great benefits and some not so good benefits. I will list the pro’s and con’s below.

FHA Loan Pros

• The FHA Loan is assumable. This means that at any point in time someone can assume on or off the loan as long as they qualify.
• We often use this benefit when a borrower does not have enough income to qualify. He or she can have a family member co-sign for them. Later when the primary borrower has more income the co-signer can come off the loan without having to refinance the loan.
• The FHA Loan only requires 3.5% down payment. The down payment can also be gifted from a family member.
• FHA Loans have lower interest rates then conventional loans. Depending on the day the FHA loan is normally .25% lower than conventional financing
• FHA Loans can be STREAM LINE refinanced. This means that the borrower in order to take advantage of the lower rates the borrower does not have to order a new appraisal. This helps in declining markets. Conventional home owners more then likely will have to have an appraisal with sufficient equity in order to qualify for the lower rate.
• The FHA Loan is the only loan option that will allow for Down Payment Assistance Programs.

FHA Loan Cons

• All FHA Loans have whats called Monthly Mortgage Insurance. Borrowers will have to pay monthly payment as well as an up front financed amount.
• If a borrower wanted to do a 15 year loan and put 10% down the borrower would avoid having to pay for the monthly mortgage insurance. They would still have the upfront mortgage insurance premium.

The MIP is a requirement from the government. There are two parts to the Mortgage Insurance.

Monthly Mortgage Insurance

This is a monthly charge and is calculated by multiplying the loan amount by .9% and deviding by 12/months. Example: 200,000 x .9% = $1,800 / 12 months = $150/month

Mortgage Insurance Premium

This is a one time charge that gets financed on top of the loan amount and is calculated by multiplying 1% to the loan amount. Example: $200,000 x 1% = $2,000 so the total loan amount after the MIP is financed is $202,00.00

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