The Federal Housing Administration (FHA), which is a part of HUD, insures this loan so the lender can offer a more competitive deal. This type of loan is popular among first-time homebuyers. However, being a first-time buyer is not a requirement. FHA loans are normally restricted to a primary residence and only one FHA loan per person, unless the borrower or borrowers can prove that their family has outgrown the current residence or if an employment relocation is taking place. Either way, these circumstances are up to the lender and underwriter’s discretion.
FHA’s minimum requirement for down payment for a purchase is 3.5% or $3,500 on a sale price of $100,000. Technically, FHA does not require a minimum credit score; however, lenders have what are called “lender overlays”, which usually require a credit score of at least 640. Other conditions can apply to credit scores down to 500. FHA programs come in a large assortment (e.g., 30-year, 30-Year 2/1 Buydown, 15-Year, 3/1 and 5/1 ARMs).
The advantage of doing an FHA 15-Year loan with 10% down payment or equity is that the consumer may not have to pay monthly mortgage insurance. This may change with new rules in 2013. All Conventional loans require a 20% down payment to eliminate mortgage insurance.
On a 30-Year fixed loan with 3.5% down payment, FHA requires that you pay a monthly mortgage insurance fee. Worth mentioning is that the mortgage insurance fee factor will decrease with a 5% plus down payment. Loan amounts are restricted to county loan limits, which vary from state to state.
Per FHA guidelines and in addition to the monthly mortgage insurance, the borrower or borrowers will pay an upfront mortgage insurance fee. This fee can be financed or paid in cash, but this means that interest on that fee is paid over the term of the loan.
With Conventional loan programs, the borrower or borrowers can appeal to have the mortgage insurance removed once the property’s loan-to-value ratio reaches 80%. With FHA mortgages, depending on when you closed your FHA loan, the mortgage insurance premium may apply for the life of the loan.
- FHA Refinance
When refinancing with FHA, you may refinance up to 97.75% loan to the value of the home. You may only receive up to $500 cash back at closing. This is called a Rate-and-Term Refinance. The new loan can only refinance the existing FHA-insured first lien, closing costs, and prepaid expenses. You must obtain an appraisal on this loan. You will also pay monthly mortgage insurance and an up- front mortgage insurance premium when you do a refinance. Although, you may be eligible for a refund of a portion of your original up front mortgage insurance premium paid at the time you last refinanced or purchased. Qualifications are similar to when your purchased your home.
- Streamline Refinance
If you have paid at least 6 payments on your mortgage and it’s been more than 210 days, you may qualify for a Streamline Refinance. The Streamline Refinance, which does not require an appraisal, has far less stringent requirements. Visit our streamline refinance page for more detailed information.
- Cash Out Refinance
If your property was purchased more than one year prior to the refinance, you can refinance the existing mortgage up to 85 percent of the appraised value plus the allowable closing costs, which may vary from state to state.
FHA Loan Highlights
- Ideal for borrowers with less equity looking to move to the security of a fixed mortgage.
- Qualify with less stringent qualification and credit requirements.
Calculate your monthly payment and see how the principal is paid over time.
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Learn about alternative loan programs that may fit your goals.
- Looking for a more traditional option? Choose from the most competitive rates available.
- Maximize your monthly income by changing the term of your loan.
- Potentially save thousands in interest over the first 5 to 7 years by selecting an ARM over a traditional fixed mortgage
- Avoid the extensive qualification process.
- Available as a 30-year or 15-year fixed loan as well as a 5-year adjustable rate mortgage (ARM).
- No appraisal necessary.
- Marginal credit requirements.
- Lower your rate and payment if you are a spouse, military member, or qualified veteran.
- No monthly mortgage insurance (PMI).
- Fixed-rate and adjustable-rate program options, including jumbo loans.
Why you should choose Starwest Mortgage for your home purchase:
- As a broker, Starwest gives you access to the most competitive rates, fees, and programs the wholesale lending industry has to offer. Why use a broker?
- No Closing Cost program
- Get loan status updates anytime, anywhere. Take advantage of our online tools.