The FHA loan program has remained a popular mortgage financing source for many home buyers across the nation. Many home buyers need home loan options that offer min down payment like the FHA program. In addition to the low 3.5% down payment requirement, FHA recently announced the monthly mortgage insurance is going down, making the home loan even more affordable for new buyers and current FHA mortgage holders.
In addition to a low 3.5% down payment, easy credit qualifying requirements and the backing by the federal government – FHA mortgages are an attractive option to many borrowers in the U.S. Donald Myers, FHA loan specialist, says that FHA loans will always play a big roll in the housing market whether their costs rise or fall. Most buyers (especially first time buyers) cannot qualify for a bank conventional loans that require large 10% or 20% down payments.
Below we will look at all the 2016 FHA Home Loan Benefits:
Relax credit score and down payment requirements:
The FHA requirements for credit score and down payments are far lower than for conventional loans. Borrowers can technically qualify for an FHA loan with credit scores of at least 580 credit score and a down payment of just 3.5 percent – according to FHA. While FHA-backed mortgage with a credit FICO of 580 is “available” to borrowers, many lenders and banks will add their own in house “overlays” on top these minimum credit requirements. Loans with the lowest credit scores tend to default at a much higher rate, and mortgage companies are afraid that if they issue too many loans that later fail, HUD will no longer allow them to write FHA-backed mortgages. Therefore, many borrowers will find they need to have credit scores of at least 620 to qualify for the max 96.5% financing.
FHA mortgage interest rates:
FHA loan rates are typically the lowest 30 / 15 year fixed rates available and lower than conforming loans. FHA Borrowers with credit scores of 680 will often qualify for the same interest rate as would conventional borrowers with a score of 720 + would. In addition, they will not be required to put as much money down.
FHA mortgage insurance premiums:
The biggest downside of FHA loans has long been the costs associated with the upfront and annual mortgage insurance premiums. But since the interest rates on FHA loans are generally lower when compared to conventional, it’s often times off sets the additional costs.
The upfront mortgage insurance premium (MIP) is 1.75 percent of the loan amount. That is $3,500 on a $200,000 mortgage. That cost is added to the principal balance of your loan. So your loan amount is actually $203,500.
However, starting in 2015, the FHA reduced the annual mortgage insurance premium on 30-year fixed-rate FHA loans from 1.35 percent to 0.85 percent of the loan balance. Just to clear up any confusion, the annual mortgage insurance is actually the monthly insurance (PMI) that is added to your monthly payment. This is the monthly PMI rate, not the one time funding fee of 1.75%. The new mortgage insurance reduction is a real big savings. On a $200,000 loan, the annual premium of 1.35 percent would cost borrowers $2,700. But with a premium of 0.85 percent, borrowers will only pay $1,700 for the same loan amount.
The lower annual rate does not apply to those applicants who are taking out 15 year fixed mortgage terms, these will remain the same. Borrower can read all about the latest FHA mortgage insurance calculator 2016 here. Please also see the chart below – this compares the new and old FHA monthly mortgage insurance rates, the monthly saving is pretty good!
FHA closing costs:
FHA still permits the home sellers to pay up to 6% of the loan amount to cover buyers’ closing costs. In conventional loans, sellers can only pay up to 3% in most cases. So this allows the FHA home buyer to put less money into the transaction. I’m some cases a borrower can just pay the down payment, and have the seller pay all closing costs. Most first-time buyers can come up with enough money for a down payment, but then they have nothing else. So allowing the home seller to pay the tab on closing costs is a big help for many.
Secure backing by the U.S Government:
FHA loans are backed by the US government – Federal Housing Administration. The program offers safe secure fixed rate terms with no pre payment ( early pay off) penalties.
Additional FHA notes:
FHA did announce some recent changes in regards to student loan deferments. Any applicants that have student loans can read about the latest FHA guideline changes 2016 here.
Home Owners that received their FHA loan before 2015 should look into a FHA streamline refinance. Not only are interest rates near all time low levels, but together with the new reduced FHA mortgage insurance of 2016 could save you hundreds each month.
Questions about applying for a FHA purchase or refinance loan? Just visit www.FhaMortgageSource.com for more information. FHA Mortgage Source serves home buyers in all 50 states, 7 days a week.