Millions of Americans have achieved the dream of home ownership because they were able to get approved for an FHA loan. Many of these homeowners may not have qualified for a conventional mortgage. Whether you are a first-time homebuyer or a homeowner preparing to refinance or sell your house and buy a new one, it is well worth your time to find out whether or not you can benefit from an FHA loan.
What is an FHA Loan?
Although you may know that the Federal Housing Administration (FHA) is an agency of the U.S. government, you still may have the question, exactly what is an FHA loan?
An FHA loan is a mortgage that is insured by the FHA. That makes it a less risky type of loan for lenders to offer because, if a borrower can't pay back the loan, the FHA will bear some of the loss.
It's important to note that the FHA does not lend money, but rather it insures loans that are available from FHA-approved lenders. Freedom Mortgage has been an FHA-approved lender for many years.
Why does the FHA insure loans? Because one of the FHA's goals is to help more people become homeowners by easing the requirements to get approved for a mortgage. FHA refinancing is also available, with special programs that require less documentation and no appraisal.
How does this affect you, if you are looking for a mortgage? It means that you may be able to buy a house with a smaller down payment and less-than-perfect credit if you get an FHA loan.
FHA Loan Requirements
Compared to conventional loans, FHA loan requirements are less demanding. For example, FHA loans feature: • Down payments as low as 3.5% • Lower closing costs • Easier credit qualifying
In addition, an FHA loan typically has less strict requirements regarding debt-to-income ratios compared to a conventional mortgage.
An FHA loan does require a monthly mortgage insurance premium (MIP) as part of your monthly mortgage payment. The MIP amount may vary depending on the size of your down payment.
The good news is that the FHA MIP is often lower than the equivalent private mortgage insurance (PMI) premium that you might have to pay on a conventional loan with a low down payment.
Another important requirement is that the amount of an FHA loan must be less than the FHA "loan limit."
FHA Loan Limits
The purpose of FHA loan limits is to focus resources on helping the "average" American own a home – not subsidizing the purchase of luxurious mansions. Therefore, there are limits as to how large an FHA loan can be.
Because the cost of living is not the same throughout the country, FHA loan limits vary from one county to the next. In areas where the average cost of a home is very low, the FHA loan limit may be as low as $271,050. This means that you cannot get an FHA loan for more than that amount. In areas where the cost of living is highest, the loan limit may be as high as $625,000.
FHA loan limits are based on the Home Price Index (HPI) and are subject to change every year.
For information on current FHA loan limits, advice on how to get approved for an FHA loan and to find out if you can benefit from an FHA loan, call Freedom Mortgage.
Remove content: For 25 years, Freedom Mortgage Corporation has been earning a name for itself as a full-service lender with strong customer service and a unique streamlined process.
Freedom Mortgage has proudly helped customers purchase their dream home and refinance their existing mortgages since 1990.
If you're experiencing financial difficulties, we're here to help you.