FHA Loans
Unlock the door to homeownership with our FHA Loans.
FHA Loans
An FHA loan is the go-to funding solution for borrowers who are light on funds to close, income, or credit score to buy a Primary Residence. These mortgages are guaranteed by the Federal Government, and because of this guarantee, lenders are able to offer FHA loans with lower interest rates.
Many first-time homebuyers believe that FHA loans are the best option because their interest rates are lower, however this may not always be the case. A complete review of each borrower’s situation must be completed to establish suitability of an FHA loan.
Down Payment Requirements
The minimum Down Payment requirement for an FHA loan is 3.50% of the loan amount. Many borrowers are drawn conceptually to FHA loans because of the lower down payment requirements, but Conventional mortgages do offer opportunities for a lower down payment (see above).
Loan Terms
FHA Loan terms are similar to Conventional Loans with respect to term offerings. They come in Fixed Rate and Adjustable Rate Mortgage (ARM) terms.
Fixed Rate Mortgages are offered in 30-Year and 15-Year fixed rate terms.
FHA Adjustable Rate Mortgages are offered with 30-Year loan terms and a choice of 5-, 7- and 10-Year fixed initial terms.
FHA ARMS are no different to Conventional ARMs in terms of uncertainty of rates and monthly payments in the future. Buyers should have confidence that their income is stable (or rising) and can handle payment shock in the future before considering an ARM loan.
Mortgage Insurance
FHA Loans require both an Upfront and Running (monthly) mortgage insurance payment.
Upfront Mortgage Insurance Premium
The Upfront Mortgage Insurance Premium is equal 1.75% of the loan amount and is required on all FHA loans – regardless the down payment. This amount can be financed into your loan which is helpful because the payment does not need to come out of the borrower’s pocket, but results in a loss of equity in the home.
For Example: A buyer puts down a minimum 3.50% down payment on a $200,000 home purchase. The down payment will be $7,000 (3.5% of $200k) but the buyer will require an upfront mortgage insurance premium of $3,3778 (1.75% of the loan amount) which will be added to the “base” loan amount. This is essentially eats up almost half of the initial equity in the transaction.
Monthly (or Running) Mortgage Insurance
Unlike Conventional Loans, running Mortgage Insurance is required on all FHA loans – even if a 20% down payment is made. The premiums are established based on the down payment and the loan term.
FHA Mortgage Insurance will last the life of the loan if the buyer puts down less than 10% down payment. If the down payment is great than 10% then the mortgage insurance will terminate after 11 years. This is considerably longer than a Conventional Mortgage, which is typically cancelled at 78% of Loan-to-Value.
The monthly premium is starts off at around 0.50% to 0.55% of the loan amount, depending on the down payment.
Pre-Payment Penalties
FHA Loans do not carry Pre-Payment Penalties.
Other Factors
FHA loan limits (think maximum loan amount) are usually lower than that of Convectional Mortgage loans. The maximum Conventional Loan Amount in 2023 is $726,200, however the maximum FHA loan limit is around $472,030. This could be a limitation for some buyers at the higher end of the price range.
There are many factors involved in establishing product suitability. To find out what is appropriate for you and your family, please request a no-obligation consultation request by clicking the button below.
Exhale Lending is a mortgage brokerage firm that embodies trust, transparency, and a genuine desire to help clients achieve financial serenity. With our client-centric approach, expertise, and unwavering commitment to excellence, Exhale Lending is poised to make a meaningful impact on the journey towards homeownership for individuals and families alike.
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Exhale Lending, L.L.C.
Equal Housing Opportunity
Office Location
Cary, NC 27511