December 15, 2016
If you are considering an FHA home loan, there are a few simple basics to keep in mind about your loan application that will help you in both the planning stages and the application stage of the loan. Did you know?
1. FHA mortgages require a down payment, but that down payment is lower than many conventional mortgages.
FHA home loans require a down payment of 3.5%, but you may encounter conventional mortgage loan requirements as high as 20%. This is an important factor when trying to plan a budget for your new monthly mortgage payment. FHA mortgages have down payments calculated as a percentage of the adjusted price of the home.
2. FHA mortgages require an appraisal to calculate the fair market value of the property and to insure the home meets minimum FHA standards.
The appraisal is an expense the borrower pays, and this expense should be budgeted for in the planning stages. Appraisal fees vary depending on the housing market, so borrowers should expect to do some research in their local area to see what is considered customary. If issues are found with the property that can be corrected as a condition of loan approval, an additional compliance inspection may be required also. Borrowers do well to anticipate that expense, just in case.
3. FHA home loans do require a credit check for new purchase loans, but the FICO score requirements differ from conventional mortgages.
FHA loan rules offer more forgiving FICO score standards. However, borrowers with credit issues should consider getting some homebuyer counseling to better prepare for an FHA mortgage loan. This counseling should be done long before a loan application is filled out, because one key aspect of becoming better prepared for a home loan is getting a record of reliable payments. This takes time.
Borrowers are advised to come to the FHA loan application with no less than 12 months of no late or missed payments. You can contact the FHA/HUD directly at 1-800 CALL FHA to request a referral to a local, HUD-approved housing counselor who can assist you.
4. FHA loans feature loan guaranty limits that vary depending on the housing market you’re in.
Some borrowers assume that the standard FHA loan guaranty limit applies regardless of where they live in the USA, but this is not true. A borrower living in a high-cost area such as California may find that the FHA loan guaranty limits are much higher depending on the market. This is an important factor to keep in mind when house hunting.
5. The FHA loan program offers both fixed-rate and adjustable rate mortgages.
Borrowers have the option to apply for an adjustable rate loan where offered by a participating FHA lender. Adjustable rate mortgages include an introductory rate, and certain increases or decreases over the lifetime of the mortgage. These changes are regulated by FHA loan rules found in HUD 4000.1. Some borrowers purchase with an adjustable rate mortgage with the intent on refinancing later into a fixed-rate loan. Discuss this option with a loan officer to see what is possible based on your financial needs and goals.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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