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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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