FHA Mortgages have become very popular for purchasing a home or refinancing. The program has more lienant guidelines than a Conforming Loan. The program typically comes in a 15 yr or 30 yr term. It has fixed or adjustable interest rates. It also allows a temporary buy down of your interest rate. This makes your rate lower the first year or two of the loan.
FHA has requirements for the property you are purchasing or refinancing. Usually these requirements are items attached to the home have to be in working order and not cause a safety issue. The appraiser of the home determines whether a loan is acceptable for FHA financing.
If you are using FHA to purchase a home the minimum required down payment is 3.5% of the purchase price or appraised value. (whichever is less) This down payment can come from a gift from a qualified relative. It can also come from government grant programs or your employer.
If you are using FHA to refinance your home you can borrow up to 97.75% of the homes appraised value when you are paying off existing mortgages on the home and receiving no cash from the loan. If you want to receive cash from the loan for home improvements, to pay off bills, or to have some extra cash you are limited to 85% of the homes appraised value.
FHA also offers a home rehabilitation program called a 203k or 203k Streamline. These programs allow you to access funds to fix or improve a home. It allows you to use up to 110% of the appraised value with improvements. This program has grown in popularity with the increase in foreclosed homes.
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FHA may require that you pay Mortgage Insurance. The insurance is paid to the government and insures loans against default. There are 2 types of insurance.
- Up Front Mortgage Insurance (UFMIP)
- Monthly Mortgage Insurance (MI)
FHA Mortgage Insurance is not PMI because it is not privately insured. It is insured by the government. The premium you pay depends on the term of the loan and the loan to value ratio (LTV). The up front amount you pay is always 2.25% of the loan amount unless you are refinancing an existing FHA Loan. The monthly amount is a % of the loan amount divided by 12. That equals the monthly amount you pay.
FHA requires that if you are required to pay a monthly premium you must pay it for a minimum of 5 years. The monthly premium no longer has to be paid after 5 years if you have paid your mortgage balance down to 78% of:
The current monthly rates are:
.55% for a 30 year term over 95% LTV
.50% for a 30 year term under 90% LTV
.25% for a 15 year term over 90% LTV
Not required for a 15 year term under 90% LTV
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FHA Purchase:
- 3.5% Minimum Down Payment
- Gift Funds Are Acceptable
- Seller Can Contribute Up To 6% Of The Purchase Price To Pay Closing Cost's
- No Income or Property Location Restrictions
- Purchase With Rehab
- Higher Debt Ratio Allowed
- More Flexible Guidelines
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FHA Refinance:
- 97.75% Rate and Term Refinance
- Second Mortgages May Be Considered Rate And Term
- 85% Cash Out Refinance
- No Income or Property Location Restrictions
- Home Rehab Or Improvement Up To 110% Of The Value After Improvements
- Higher Debt Ratio Allowed
- More Flexible Guidelines
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