The Federal Housing Administration (FHA) assists homebuyers by offering mortgage loans that require lower down payments than traditional conventional loans. For this benefit the borrower pays an upfront mortgage insurance premium, plus a monthly premium that is included with the payment.
Down Payment: Yes (usually less than amount required by conventional loans)
Appraisal Type: Primary Residence Only
Requirements to Qualify: Less strict than other loan types
Loan Purpose: Home Purchase or Refinance
The Section 203(b) mortgage is the most common FHA program and can be used to purchase new or existing 1-4 family homes, including manufactured homes. The FHA 203(k) mortgage allows a borrower to purchase or refinance and rehabilitate a home that is at least one year old. Part of the loan proceeds are used to purchase the home or pay off the existing mortgage, and the remaining funds are placed in an escrow account and released as the rehab work is completed.
The biggest disadvantage of FHA financing is the mortgage insurance premium (MIP). For most FHA loans, there is an upfront payment of 1.75% of the loan amount payable at closing, and a .55% per year renewal premium that is paid monthly. Like Private Mortgage Insurance (discussed under Conventional Loans), the MIP is automatically canceled when the homeowner’s equity reaches 78%. MIP is required for at least 60 payments, even if the 78% LTV level has already been reached.
FHA also offers refinance mortgage programs. Streamline refinances do not have any credit qualifying standards and can be done with or without an appraisal. They can only be used to refinance existing FHA insured mortgages where the 12 previous mortgage payments and the current payment have not been late 30 days or more. Additionally, the refinance must result in a benefit to the borrower in the form of a lower interest rate, lower monthly payments, a shorter loan term, or a conversion from a variable-rate to a fixed-rate mortgage. On a Streamline refinance without an appraisal, the new loan amount cannot exceed the unpaid principal balance plus 30 days interest, and therefore cannot result in cash back to the borrower. Loan amounts on Streamline refinances where an appraisal is obtained can include closing costs as long as the final loan amount meets requirements related to the appraised value.
For more information about FHA mortgage loans and FHA loan requirements, or to apply for an FHA loan, please visit www.1stMarinerMortgage.com.