The Federal Housing Administration (FHA) loan program was established to provide assistance to first-time homebuyers in need of a mortgage. As a loan underwritten by the FHA itself, this type of housing assistance program can require a down payment of as little as 3.5 percent and as much as 10 percent of the mortgage amount. Anyone with a credit score of 580 or more is needed to make a down payment of 3.5 percent, while those with a credit score between 500 and 579 will be required to put down a minimum of 10% of the purchase price.
Many applicants choose an FHA loan because they are less difficult to qualify for, allowing for a lower credit score and specific credit history blemishes to be accepted into the loan program. FHA loans are frequently a good match for first-time homebuyers since down payments are lower and required credit scores are lower, allowing borrowers to purchase a house more quickly than they otherwise would. Even though the federal government guarantees the mortgages, the loans are acquired via mortgage lenders licensed by the Federal Housing Administration.
The Minimum Amount of Mortgage Insurance Required for a FHA Loan
One drawback of FHA loans is that borrowers who put less than 20 percent down are compelled to pay mortgage insurance payments, often known as MIP, on their loans. This extra payment is necessary because lenders are taking on greater risk due to the lesser down payment offered by the borrower, which might harm the lender if the borrower fails to make payments on the loan and defaults on it.
Mortgage insurance premiums for FHA loans are divided into two categories:
- Mortgage insurance premiums are 1.75 percent of the loan amount and are paid when the borrower obtains the loan
- Depending on the loan period (15 years vs. 30 years), loan size, and initial loan-to-value ratio (LTV), the annual mortgage insurance cost may range from 0.45 percent to 1.05 percent
An upfront MIP of $2,625 would be charged to a borrower borrowing $150,000. The yearly MIP would vary from $675 ($56.25 per month) to $1,575 ($131.25 per month) for a homebuyer borrowing $150,000. In contrast to conventional loan borrowers who are required to pay private mortgage insurance for the duration of the loan, FHA loan borrowers who put down less than 10 percent are required to pay these premiums for the loan duration. The only way to get out of paying them is to refinance into a loan that is not guaranteed by the FHA or sell your property.
Rules For FHA Loans
Borrowers who qualify for an FHA loan may be eligible to receive a gift of money to go toward the total amount of the down payment. Borrowers must adhere to several requirements to avoid penalties. As the United States Department of Housing and Urban Development points out, gifts may come from family and friends as well as from labor unions and businesses (HUD). Even non-profit organizations may contribute money to a down payment by depositing it to the account.
The following parties are barred from making a down payment under the HUD guidelines:
- Constructors of residential structures
- Agents or brokers in the real estate industry
- Anyone who has a vested interest in the sale of the property
While the FHA home loan does not have a unique down payment help program, each state does provide a variety of down payment support programs for first-time and low-income homebuyers, among other things. In most cases, borrowers who acquire an FHA loan are qualified for one of these programs.
If you are looking for ways on how to get approved for a FHA home loan, Net Lending can always help you. Our mortgage lending specialists will help you find the best rates that suit your needs. Contact us now so we can assist you further!