This blog post will introduce you to FHA loans and answer questions you may have about FHA loans.
FHA loans are mortgages insured by the Federal Housing Administration, or FHA, which regulates the housing industry and serves as the largest mortgage insurer in the world. Since the FHA insures the lender against borrower default, lenders are able to offer attractive rates for these loans, along with less strict qualification requirements. FHA loans make homeownership accessible to more people. For instance, FHA loans allow for down payments of as little as 3.5% as opposed to the typical 20%. To put the significance of that in perspective, the average home sale price in Northern Virginia in December of 2014 was $573,000: a conventional down payment of 20% would require $114,600 cash paid upfront to the lender. With an FHA loan and a 3.5% down payment, you would have to come up with $20,055, hardly spare change but much more manageable than $114,600.
Do I qualify for an FHA loan?
If your credit score is 580 or higher, you can qualify for a down payment of as little as 3.5%.
Applicants with a credit score of 500-579 will usually have to put a 10% down payment to qualify for the loan. People with a credit score of less than 500 are usually not eligible for FHA loans.
Is there a catch? How can lenders allow for such low down payments?
If you are considering an FHA loan, you do need to factor in MIP(Mortgage Insurance Premium). MIP insures the loan against borrower default, and can either be paid as an upfront premium at closing(1.75% of loan amount). Or, the borrower can opt for Annual MIP, which is charged monthly. The amount of MIP charged monthly depends on the loan amount, term, and LTV(Loan to Value) ratio.
If you are looking to buy, sell, or invest in Northern Virginia real estate, give us a call today at 571-249-3551. We have proven results and will serve you to help you reach your goals!