When it comes time to buy a home you’ll be faced with an important decision. How will you be financing this purchase?
Around a third of all home purchases are paid in cash, but that leaves a full two-thirds of buyers seeking a mortgage. From adjustable rate (ARM) to fixed-rate mortgages there are a lot of choices.
Today’s buyers are also faced with one big issue: the downpayment. In the aftermath of the 2009 recession many lenders are requiring at least a 20 percent downpayment. This helps the lender to ensure their investment in the unfortunate event that the buyer defaults on the loan down the road.
Not every buyer can afford a 20 percent downpayment, however. That’s where an FHA loan comes in. How does an FHA loan differ from a conventional loan?
According the the Federal Housing Administration (FHA) your downpayment amount can be as low as 3.5 percent (depending on your credit score). Additionally, most of your closing costs and fees can be included in the loan and you are more apt to be able to qualify for credit. There are also no penalties for early pay-off — one peculiar loophole with some conventional mortgages.
There are, however, FHA loan limits, which may be problematic for buyers who live in high cost areas.
As of October 1, 2011, there are new limits. HUD reports that the FHA reduced loan limits in the highest cost metro areas of the country. They noted that "the new "ceiling" loan limit for higher cost areas was reduced from $729,750 to $625,500 for one-unit properties. FHA loan limits vary based on area median home price, but all will fall within the range of $271,050 and $625,500 for one unit properties." Not every sort of dwelling or property is eligible for an FHA, however.
Additionally, an FHA loan is transferrable. This means the borrower can transfer the loan to another qualified borrower without this new party having to apply for a brand new mortgage.
What about a fixer-upper home? FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. You can even take out an FHA Energy-Efficient Mortgage that includes the purchase price and funds for energy efficient upgrades!
Are you interested in finding out more about FHA loans? HUD sponsors housing counselor agencies across the country. This service is provided for free. Simply call 800-569-4287.
Published: October 11, 2012