Is The FHA Mortgage the Best for You?
If you’re thinking about getting a house or refinancing your mortgage in these gloomy credit crunch days, you may be thinking about getting a government-backed-up loan instead of a conventional one. Then the FHA mortgage may be best for you. The FHA (Federal Housing Administration) mortgage loan is a federal government-backed up mortgage loan under the HUD (Housing and Urban Development) that is designed to help people with tattered credit score or first time homeowners to have a house to live in. Isn’t that excellent?
Well you may reckon it as too excellent to be right. As excellent as it seems, now I’m going to clarify why the FHA mortgage loan may be the best for you (and for most other people in the U.S right now).
1. With an FHA mortgage loan you could buy a house with down payment as low as 3.5%. If needed, the FHA will allow certain down payment help such as gift funds from a relative of yours.
2. FHA mortgages allow up to 95% loan to value on cash out refinance, which is much more than conventional refinancing or most other home equity loan programs. But, there are some restrictions regarding the seasoning time of ownership and the home valuation. Cash out is limited to 85% for loans over $417,000 and if last year’s mortgage payments were late.
3. FHA mortgage have flexible guidelines which consider a borrower’s overall credit history, not just the minimum credit score (580). If you have any history of bankruptcy they allow it to happen just two years or more ago and you may be required to give credit explanation on that. Foreclosure needs 3 years.
4. The FHA mortgage loans have flexible qualifying debt ratios. You can have total mortgage payment including property taxes and insurance not more than 29% of yucky income before deducting taxes and a maximum of 41% of yucky income for the mortgage payment plus all other monthly debt payments but the debt ratios can be higher in some cases such as you have excellent cash reserves, job stability, or a excellent credit history. If needed, a non-occupant co-borrower can be added to the mortgage to help qualify.
5. You pay lower insurance premium on your loan with the FHA program than what you’ll be having with the conventional ones. An upfront insurance premium of 1.5% is required to be paid at closing and a monthly premium of 0.5%, but of course it can be added onto the loan amount. It is still lower than conventional loans which require up to 3% per year mortgage insurance expenses. But, condos do not require the up-front premium, only the monthly amount.
Now, reading that, you may be interested in searching the nearest FHA mortgage lenders in your neighborhood. Go to http://locator.fha.gov/cgi-bin/answers_hud_loc.cfg/php/loc/enduser/loc.php to find one. Excellent hunting!
Also read: FHA Interest Rates
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