Why choose an FHA loan?

There are lots of good reasons to choose an FHA loan, especially if one or more of the following apply to you:

• You're a first-time homebuyer (but you do not have to be) 
• You don't have a lot of money to put down on a house
• You want to keep your monthly payments as low as possible
• You're worried about your monthly payments going up
• You're worried about qualifying for a loan
• You don't have perfect credit
• You're worried about what will happen if you fall behind on your payments

If any of these things describe you, then an FHA loan may be right for you. Why? FHA-insured loans offer many benefits and protections that you won't find in other loans including:

Lower cost: FHA loans have competitive interest rates because the Federal government insures the loans for lenders, lessening their risk in case of default. Ask us to compare an FHA loan with other loan types that you may qualify for.

Smaller down payment: FHA loans have a low 3.5% down payment and the money can come from a family member, employer or charitable organization as a gift. Closing costs and fees can also be included in the loan amount. One of our FHA loan officer specialists can answer all of your questions. 

Easier qualification: Because FHA insures your mortgage, lenders may be more willing to give you loan terms that make it easier for you to qualify.

Less than perfect credit: You don't have to have perfect credit to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan. One of our FHA loan specialists will help determine if you qualify.

More protection to keep your home: The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, the FHA has many options to help you keep you in your home and avoid foreclosure.

The FHA does not give money to people for a home and it does not set the interest rates on mortgages it insures. FHA insures loans for lenders against defaults. One of our FHA loan specialists will help get you the best interest rate and terms on the mortgage that you qualify for, and help you start the loan application process.

You may use an FHA-insured mortgage to purchase or refinance a new or existing 1-4 family home, a condominium unit or a manufactured or mobile home (provided it is on a permanent foundation) and provided you will live there as your primary residence.

What kinds of loans does FHA offer?

Fixed rate loans - Most FHA loans are fixed-rate mortgages (loans). In a fixed rate mortgage, your interest rate stays the same during the whole loan period, normally 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your monthly payment will be, and you can plan for it.

Adjustable rate loans - some first-time homebuyers are a little stretched financially, so they want payments as low as possible at the beginning. With FHA's adjustable rate mortgage (ARM), the initial interest rate and monthly payments are low, but these may change during the life of the loan. FHA uses the 1-Year Constant Maturity Treasury Index (1 Yr CMT the most widely used index, to calculate the changes in interest rates. An index is a measure of interest rate changes that determine how much the interest rate on an ARM will change over time.

The maximum amount that the interest rate on your loan may increase or decrease in any one year is 1 or 2 percentage points, depending upon the type of ARM you choose. Over the life of the loan, the maximum interest rate change is 5 or 6 percentage points from the initial rate, again depending upon the type of ARM you choose. The advantage of an ARM is that you may be able to afford more house because your initial interest rate will be lower, as will your payment.

How do FHA loans compare to conventional loans?

Conventional loans usually require a larger down payment. And, if you have less than perfect credit you may not qualify for many conventional loans and find yourself being offered loans with higher interest rates and/or fees than you expected. The best thing to do is compare the cost of the conventional loan to an FHA loan. What are the fees on each? What is the interest rate? How much is the mortgage insurance on each? How much down payment is required? For borrowers with excellent credit and a large down payment, a conventional loan may be less expensive. For many others, it will be more expensive than FHA.

Do you have to buy mortgage insurance on an FHA loan?

Yes - there is an up front mortgage insurance premium that 1.00% of the loan amount and is paid at settlement. In most cases, this mortgage insurance premium is included in your loan amount, so you are really paying it over the life of the loan. In addition, on loans with a term of greater than 15 years and a loan-to-value ratio of 90% or greater (meaning you are borrowing more than 90% of the value of the home), you will pay an annual mortgage insurance premium of 0.90% of the loan amount for a 30 year term with less then a 5% down payment and 0.85% for a 30 year term with a down payment of more then 5% in monthly installments. If you qualify for a 15 year term the monthly installments are calculated at .25% for down payments less than 5% and are eliminated for a 15 year term with a down payment of greater than 5%.

One of our FHA loan specialists can provide the monthly payment for you. 

Example of a FHA 30 year fixed loan with less than a 5% down payment:

Most loans require mortgage insurance when your down payment is less than 20% of the sales price. On conventional loans, mortgage insurance is provided by private companies. Whether private mortgage insurance is less than, equal to, or more than FHA loan insurance will depend upon the loan program and your qualifications. Once again, one of our FHA loan specialists can help determine which one is right for you.

When you compare the benefits and cost of an FHA insured loan to a conventional loan with mortgage insurance - we think you find it's a very good deal.