What is a FHA loan?
It is a loan guarantee program that is provided by the Federal Housing Administration as a replacement for mortgage insurance from a private company. They are available for borrowers who qualify for the purpose of acquiring a low down payment mortgage.
The funds are not actually loaned to the borrower by FHA, but are simply guaranteed by them. This eliminates the financial risk on the part of the lender when they extend the credit for home loans in Orange County. For more information, the website for the U.S. Dept. of Housing and Urban Development contains information on locating local counselors that are HUD-approved and capable of answering any questions regarding FHA loans and home loans in Orange County.
- A minimum three percent cash investment is required for the FHA loan that has proven to be the most popular among consumers. FHA does permit all of the funds required at closing to be in the form of a gift from a government agency, non-profit organization or a relative of the borrower.
- Although not as stringent as Freddie Mac (the Federal Home Loan Mortgage Corporation), or Fannie Mae (the Federal National Mortgage Association) in their lending guidelines, the seller of a property is responsible for paying a portion of closing costs on an FHA loan. On the other hand, a portion of the closing costs owed by the borrower can be inclusive in the overall loan amount.
- An FHA loan can be assumable, and what that means is that the loan can be transferred to a new owner when selling your house. What it means to the new owner is that he or she has the ability of taking over your loan free of additional costs for getting the new loan. The buyer will have to satisfy the credit requirements for a new loan in order to assume your loan. The main benefit of all this is that selling your home could be much easier with it than without it.
Types of FHA loan Programs
The three types of FHA loan programs include:
- FHA 2-1 buy-down loan
- FHA 251 adjustable-rate-mortgage
- FHA 203(b) 15 or 30 year fixed rate
In addition, there is an Energy Efficient Mortgage program for allowing homeowners the opportunity of financing their renovation projects to add features that are energy-efficient to their existing or new home when it is part and parcel to FHA refinancing or home purchase.
Disadvantages of FHA Loans
On a 15 or 30 year FHA loan, the premium for mortgage insurance costs the borrower 1.5 percent of the total loan dollar amount at the time of closing plus a renewal premium annually of 0.5 percent for the life of the loan. Mortgage insurance premiums do not cancel out after the equity gets to a specific target level as they do with private mortgage insurance.
Shopping for rates is important when getting an FHA mortgage, just like with conventional loans, due to the fact that the government does not establish the rates, the lender does. In general loan rates for FHA loanstend to run a bit higher than those of conventional loans that are not guaranteed by the government; however they should not be a great deal higher unless credit issues are involved.
Prior to applying, it’s a good idea to get a credit report and credit score from one or more of the major three credit bureaus. Be sure to carefully check the reports for errors and then dispute them if you find any to get them corrected.
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