Houses require a huge amount of money. Thankfully, there are multiple financing options to afford your dream home. One of these options is FHA loans, which are mortgages insured by the Federal Housing Authority.
Since FHA loans don’t have strict financial restrictions, they are ideal for first-time homebuyers or borrowers with imperfect credit who want to buy a home sooner. However, they can be more expensive. Determine if this is the right mortgage for you through this guide.
What Is the Minimum Down Payment?
As mentioned above, an FHA loan is an attractive financing option because it is generally easier to qualify for. It also has lower down payments. The minimum down payment is 3.5-10 percent, depending on the borrower’s credit score. Borrowers with a credit score of 580 or higher can get the 3.5 percent minimum down payment deal. On the other hand, borrowers with a credit score of 500-579 will be required to put a ten percent down payment.
What Are the Disadvantages?
FHA loans are created for low- to moderate-income borrowers. One of their drawbacks is that minimum property standards must be met. For instance, the house must be a borrower’s primary residence.
Another disadvantage is the duration of the loan. Unlike private mortgage insurance, this type of loan requires mortgage insurance premiums (MIP) throughout the entire term of the mortgage. for borrowers who put down less than 20 percent. This premium is usually included in the closing costs or the total amount of the loan.
FHA loans come with these MIPs: upfront and annual mortgage insurance premium. In upfront MIP, borrowers are required to pay 1.75 percent of the loan amount. It must be paid upon getting the loan. In contrast, annual MIP requires borrowers to pay 0.45-1.05 percent, depending on the loan amount, the term of the loan, and the initial loan-to-value (LTV) ratio. Additionally, these monthly payments are divided by 12.
This additional payment is required because mortgage lenders are taking on more risk. Since borrowers made a lower down payment, they could get affected when homebuyers failed to make payments. Selling the home or refinancing into a non-FHA loan are the only ways to stop paying these premiums.
Are There Down Payment Gift Rules?
Under standard family guidelines, the FHA allows borrowers who applied for an FHA loan must receive gift funds only from their direct family members or another eligible donor. This means cousins, nephews, and nieces are not eligible to offer gift money. The FHA also accepts gifts from charitable organizations, labor unions, or the borrowers’ employer. Funds from public entities or government agencies that assist first-time homebuyers or low-to-moderate income earners can also be used.
The FHA prohibits some individuals from contributing to FHA loan down payments. This includes real estate agents, real estate brokers, home builders, sellers, or other people interested in selling the house.
Conclusion
If you don’t have cash on hand to buy your dream home, no need to worry. You can still secure a loan to purchase a property as soon as possible. Since you will likely be paying it back over a long time, it’s crucial that you choose the best type of mortgage that suits your budget and needs. If you think an FHA loan is right for you, reach out to a loan company right away.
At Pennix Mortgage, our mortgage company offers FHA. We also have fixed-rate, adjustable-rate, and VA loans available at the lowest rates. Contact us today at 404-451-1250 for inquiries!
