Over the years, home selling and buying have become an increasing trend in the United States. Reasons vary from person-to-person but ultimately, the goal is to buy a new house.
However, some could not really afford to purchase because of low- income. Good thing there’s an FHA loan.
FHA Loans for Homeowners in Washington DC
The FHA loans become popular on 2008 after the surge of the financial crisis in the USA. It was originally an option for low- income buyers but boosts in popularity after the crisis.
More and more people are applying for FHA loans including those who struggle to get approved for a conventional mortgage. If you are new to this process, here are 6 facts about FHA loans you should know before you make your application.
The Federal Housing Authority (FHA) is not the lender instead they find a lending institution to finance low-income buyers.
The FHA insures the loans and reimburses funds to the company whenever borrower won’t able to pay. With this insurance, the FHA charge borrowers with an upfront and yearly premium to protect FHA- approved lenders.
The additional mortgage insurance, which includes the Upfront MIP (mortgage insurance premiums) and yearly mortgage insurance premium, makes the FHA loan more expensive. These insurances protect the FHA and approved lending company in case of defaults.
The Upfront MIP is 1.75% of your total loan and is automatically added to your balance. The yearly premium, on the other hand, ranges from 0.45% to 0.85% up to 1.10% based on the location, the length of loan, amount borrowed and the loan-to-value-ratio. This is paid on a monthly basis.
One thing that lures homebuyers to apply for FHA loan is the fact that they don’t require a big down payment. However, most people don’t know, FHA loan still requires a 3.5% initial pay, which is calculated from the total price of the property.
This means that you have to initially invest before your loan gets approved.
Although FHA loans are designed for people who don’t have a large amount of cash and excellent credit card for down payments, there’s still a catch. A minimum credit score is required for your FHA mortgage to get approved.
You should have a credit score of 580 or higher to qualify for the 3.5 % down payment. If your score is lower than 579, you’ll have to pay 10% of the total home purchase amount.
Know your credit score to avoid unpleasant surprises during your application.
Home buying is expensive. Aside from the property cost, you also pay for additional charges including lawyer fee, title expenses appraisals, credit reports and more. These add up to your total expenses.
Sometimes, the costs are covered by the lenders, sellers, and home builder in accordance with FHA regulation. Although it’s a convenient action, lenders take advantage by adding the interest to your FHA loan. This makes your interest rate higher than expected.
Make sure to compare loan estimates to identify the best and economical mortgage before closing the deal.
If your house needs repair and renovation but doesn’t have cash to make the initial steps, the FHA has you covered. They have an FHA 230(K) loan to assist you on your house improvement projects.
However, this loan is added to your total mortgage so you have to pay the amount along with your original monthly payment. Moreover, the FHA 230 (K) loan amount is calculated based on the total repairs made than the appraised value.
Although this is helpful for low-income home buyers, it could creep up the costs.
You don’t need to make a loan. If you have a property for sale, sell to the Home Buyers. We are professional real estate investors who have intensive experience in home buying and selling. We can buy your house at the most competitive rate without requiring you to make intensive renovation and repair. Whatever your house looks like, we are ready to purchase.