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What You Need to Know About FHA Loans
FHA loans are mortgages insured by the Federal Housing Administration that for homeowners who has low to moderate income and are unable to make a large down payment. FHA loans allow the homeowner to borrow up to 97% of the house’s value, making it popular with some first- time buyer. But just like everything else, there are certain facts that you need to consider when applying for an FHA loan.
Home buyers located in states like Tennessee who has a credit score of 580 or even higher can get a mortgage with a down payment as low as 3.5%. However, those homebuyers whose credit scores are between 500 and 579 must make down payment of at least 10%. However, people who have credit scores that are under 500 are not eligible for FHA loans.
The Federal Housing Administration allows home seller, lender, and developers pay some of the borrower’s closing costs. This includes appraisal, credit report or even title expenses. Lenders, however, may charge borrowers with a higher rate on the loan if this happens. That is why borrowers have an option to compare loan estimates from competing lenders to see the difference.
Borrowers need to get their loan through an approved FHA lender since the Federal Housing Administration is considered as an insurer. However, not all FHA- approved lenders have the same interest rate and costs so it would be best for borrowers to check out other lenders to get the best deal.
Two mortgage insurance premiums are needed for all FHA loans. These mortgage premiums are considered as upfront and annual premium. The upfront premium is 1.75% of the loan amount which will be paid as soon as the borrower gets the loan. This can still be financed as part of the mortgage. Meanwhile, the annual premium is paid on a monthly basis. It may vary depending on how long the loan will be or the amount that was borrowed.
You can also use the loan to get extra cash if you need any repairs to your house. The loanable amount is based on the projected value of the repairs once completed. 203k allows the borrower to finance as much as $35,000 for repairs. 203k loan is also a great alternative for borrowers who are struggling financially or people who don’t want to see their home equity as an option. It requires borrowers a minimum of $5,000 to be spent on renovating their home. However, 203 (k) loans are only limited to owners/occupants alone. Investors are not eligible to get this loan.
These are just some of the things that you need to know about FHA loans. However, there are still other types of loans that potential homebuyers can choose from. You can always ask brokers for more options for your mortgage needs.