About FHA Loans

Admittedly, FHA loans make it easier for people to take a home loan, but they are not available to everybody. Although there is no income limits for you to acquire a FHA loan, the amount of loan that you can borrow is related to your home prices. To qualify for an FHA loans, you need to be among people who:

  • have been foreclosed on
  • have decent credit
  • have undergone bankruptcy
  • have a low down payment, say at least 3.5%
  • have two years of steady employment

Pros and Cons of FHA Loans

The reasons accounting for the popularity of the FHA loans are various. Generally, the loan has the following advantages.

The loan is very easy to qualify for. People with less-than-perfect credit can get it. What is more, it requires a low down payment, which can reduce the borrower’s financial pressure. The federal government provides loans for FHA-approved lenders so that those lenders bear less risk of loss if they lend to borrowers who could default on their mortgage payment. Lenders are willing to provide loans, even those    large mortgage loans.

 

  • Even if you want to sell your home in the future, you can still take the loan, because it is assumable. That is to say, your home buyer can assume the loan you have.
  • FHA loans can be used for both home purchase and refinance.

 

However, there are some unavoidable disadvantages of FHA loans. Since the loan has no strict application standard, it requires two kinds of premiums.

  • Upfront Mortgage Insurance Premium
  • This kind of premium is an upfront monthly premium payment. Usually, the borrower needs to pay a premium of 1% of the home loan no matter what the credit score he has got.
  • Annual MIP

 

Although the name of the premium is Annual MIP, it charges the borrowers per month. The amount of the premium is based on a borrower’s length of loan and loan-to-value ratio. In most cases, the Annual MIP has two types. One is 0.85% and the other is 0.9%. If you can meet the following requirements, you can stop paying your mortgage premium. For mortgages with terms over 15 years, the MIP will decrease after 5 years. If the remaining balance on the loan is 78% of the value of your property, the MIP will also drop off. For mortgage with terms 15 years and less and with LTV ratios of 90% or greater, the MIP will stop only when the LTV ratio reaches 78%.


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