FHA Loans

October 16, 2020

Little Known Facts About FHA Loans

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Let’s be honest. Government-insured mortgages kind of have a bad rap. People tend to think FHA loan requirements include heaps of additional paperwork, red tape, and a lengthy process. But one of the best little known benefits of FHA loans is a quick approval and ability to complete closing within 30 days. 

Low down payment, easier credit qualifications, and quick approval. Nope. Not too good to be true. 

The Federal Housing Administration does not actually write the loan but guarantees it. What does that mean, you ask? You choose the mortgage lender you want to work with. The government then protects the lender in case of a foreclosure. Basically, the FHA is absorbing the risk of granting mortgages to people who would not otherwise qualify against traditional standards. 

In short, UHL has your back by guiding you through the process and offering personalized homeownership education. The FHA has our back by insuring the loan. 

FHA Loans: Not Just for First Time Buyers

FHA loans are for everyone! They are a wonderful option for first-time buyers and very popular among them. But, contrary to popular belief, FHA loans can be used in any scenario in which a traditional loan would be used. Another little known fact is there are no income limitations. FHA loans are genuinely available to anyone who needs them. 

Credit, Down Payment, and MIP Requirements

You can qualify for an FHA Loan with most lenders with a credit score of 620 or higher and the FHA only requires a 3.5% minimum down payment. Unlike a traditional loan, this can be entirely gifted from a family member or the borrower can receive a grant for the down payment. The interest rates on FHA loans are definitely generous. If you are ready to take the first steps toward buying, we recommend you keep an eye on rates because they can and do change daily.  

Whenever your loan-to-value ratio is higher than 80% (in other words, you put less than 20% down), mortgage insurance is required. FHA loans feature a two-part mortgage insurance structure; an upfront premium and an annual premium that cannot be canceled. The upfront mortgage insurance premium is 1.75% of the loan amount and the annual premium typically falls around 0.85% for 30-year FHA loans with less than 5% down. 

FHA Loan Limits 

Before we discuss loan limits, let’s straighten out another myth. You can, in fact, buy a multi-unit property with an FHA loan. The caveat is that you need to occupy one of the units as your primary residence. 

In the greater Chicago area, the loan limit for a single-family home or condo is $368,000. Loan limits are higher for multi-unit properties. You can look up the FHA loan limits for single-family, 2-, 3-, and 4-units properties in any specific area through the Department of Housing and Urban Development’s website. (The FHA is an administration under HUD).

What’s the Point?

Mortgage points are offered by your lender as a way of paying interest upfront, thereby reducing the rate on your loan. The cost of one point is typically equal to 1% of the total loan. And, in most cases, each point lowers the interest rate by 0.25 percent. Over the life of a 30-year fixed-rate loan, you could save a little over 10,000 in interest… Emphasis on “could.”

Good deal? Not so fast. Depending on how much you are going to spend at closing makes a big difference. There is something to be said about the significance of a higher down payment versus a lower rate. Not paying points can save you both thousands upfront and over the life of the loan. 

Seek out help

Don’t feel like you have to come to a lender fully knowledgeable about your potential loan. Most of us need an FHA expert to walk us through all of the different options. Our real-life mortgage experts will be able to steer you in the right direction and personalize the loan process to suit your unique buying situation. Happy hunting!

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