Those who typically benefit most are first-time home buyers and those who have less than perfect credit.
These loans are insured by the Federal Housing Administration and are designed for low-to-moderate income borrowers who are unable (or unwilling) to make a large down payment. The down payment requirement is as low as 3.5% and these funds can come from a gift or a grant, which makes these loans very popular amongst first-time homebuyers. What also makes these loans attractive is the lower FICO score required. With the FHA loan, there is a requirement to pay Mortgage Insurance (MI) for the life of the loan, however, this is greatly reduced premium versus the Conventional loans. To calculate your MI for an FHA loan, click here (add link for calculator). So, what do you need to know about the FHA loan? Here is a quick run-down of all the ins and outs.
- Low down payment requirement- 3.5% with credit scores above 580
- Mortgage Insurance (MI) required for the life of the loan
- Upfront Mortgage Insurance Premium (UPMIP) is 1.75% and can be rolled into the loan.
- Loan terms are 15 to 30 years
- Financial hardship relief may be available.
- Closing costs can be paid by the seller, up to 6%
- No prepayment penalty
- They are assumable loans
- FHA 203K loan (rehab loan)- up to $35,000 in funds towards repairs
- One-Time-Close (OTC) Construction Loans available