(Closed) FHA Loan…ahhh so confusing!

posted 6 years ago in Home
Post # 3
Member
3943 posts
Honey bee

We have one, and yes it can be very confusing.

Have you looked into a first time homebuyer class in your area? We went to one and it was so helpful.

A good place to start is at your bank. They can give you some general information on the types of loans available, the differences between them, etc. 

Post # 4
Member
1137 posts
Bumble bee
  • Wedding: September 2010

FHA loans are government backed loans that require a smaller down payment than conventional loans (3.5% vs. 20%). They come with more restrictions such as PMI (Private Mortgage Insurance) and Inspection requirements. FHA does not make loans, it simply insures loans made by private lenders. Therefore, the process of applying for an FHA loan is not too different from a conventional mortgage with the exception of the inspection.

What are your specific questions?

Are you working with a lender or mortgage broker? They may be the best ones to answer your questions about FHA and the requirements associated with it.

 

Post # 5
Member
129 posts
Blushing bee
  • Wedding: November 2011 - Palma Sola Botanical Park

We do. You just need to go through a lender who offers FHA loans — FHA isn’t the body that’s actually LENDING you the money, but the FHA insures your loan against default. Our credit union does FHA loans. Most lenders do — you can go through a mortgage broker (which I would actually recommend) or go straight to your bank/credit union. You might want to ask your realtor for a broker/lender recommendation.

The FHA is awesome because you can put as little as 3.5% down, and it has more lax credit score requirements than traditional loans (I think it’s 620 minimum for FHA). However, there is a more stringent appraisal/inspection component — the FHA will not extend loans on homes that are in disrepair, need a lot of work, etc. For instance, the roof on the home we’re buying is 18 years old and totally and completely shot. We needed to pay to put a new roof on the house before even buying it, or the sellers had to pay to put a new roof on the house, or else we would not have gotten a loan. Thankfully, the sellers agreed!

If you have a realtor who has experience dealing with FHA loans (and they should, since they’re more popular these days), they should be able to tell you which properties would work and which would not.

GL!

Post # 6
Member
7312 posts
Busy Beekeeper
  • Wedding: October 2011 - Bed & Breakfast

The book “Home Buying for Dummies” was helpful for me. You may want to check your local library and see if you can borrow a copy. Also, find yourself a good loan agent or broker. He/she can explain the ins and outs of the loans that they offer.

In general, and FHA loan is a loan that is backed by the federal government. It allows you to have a relatively low downpayment (3.5%). In exchange for that federal backing and low downpayment, you pay a slightly higher than market rate interest rate, you must carry mortgage insurance at all times, and you must purchase a house that meets FHA standards.

Post # 7
Member
1642 posts
Bumble bee
  • Wedding: October 2012

@ButterflyDoll:  In dealing with my lender recently, FHA loans have really great rates right now (as in, he gave us a 3.7% interest rate). So don’t be scared off by them!

Post # 9
Member
13099 posts
Honey Beekeeper
  • Wedding: July 2010

A mortgage broker would probably be your best bet.  They can show you what your payments would be with a conventional vs. FHA loan and such and really tell you about the pros and cons of each option.

But from what I understand, you only need a minimum of 3.5% down with an FHA loan but there are some additional requirements that PPs have mentioned above.

Post # 11
Member
329 posts
Helper bee
  • Wedding: November 1999

@ButterflyDoll:  I don’t know all of the requirements, but I do know that having an attached garage will not disqualify a house from being eligible for an FHA loan.  We went the FHA route when we bought our house almost 3 years ago and our garage is attached.

Post # 13
Member
329 posts
Helper bee
  • Wedding: November 1999

@ButterflyDoll:  I’m sorry I can’t help you more!  To be honest, my husband did most of the work on the financial end when we bought our house.  He’s not home right now, otherwise I’d ask 🙂  I tried searching for info for you, but couldn’t find a good list. 

ETA: I found this, though I’m not sure if it is a complete list.  Might give you an idea of the reqs at least?  http://www.thehomeinspector.com/Clients/fha.html

Post # 16
Member
1820 posts
Buzzing bee
  • Wedding: August 2010

@ButterflyDoll:  You have to have an escrow account for all mortgages.  When you pay your mortgage payment every month, part of your check will go to your mortgage (principal and interest) and the rest will go into escrow.  Your escrow account is used to pay your homeowners’ insurance and your property taxes.  Each of these things is usually paid twice per year, so having the bank pay it directly is really nice – you never have to worry about having enough money available for those bills and you don’t have to remember to pay them.  (You don’t have to do anything – I just keep a copy of my tax bill for my files, but let the bank pay it.)  If you have PMI (which you will if you have an FHA-guaranteed loan), that will also be included as part of your monthly mortgage payment.

As far as PMI goes, there are two types – one that you pay every month as part of your mortgage and one that is collected as a one-time lump fee at closing.  FHA loans carry BOTH, so make sure you understand all of the costs involved.  You can deduct the monthly PMI, but not the lump sum PMI.  (As I am sure you already know, you can also deduct your principal and property taxes.)  Basically the idea behind an FHA loan is that you can pay less upfront (lower interest rate, lower downpayment), but the bank charges you a fee (in the form of PMI) for that priviledge.

There are quite a few restrictions on the type of house you can buy with an FHA loan, but the most important thing is that the amount of your loan will be limited.  (The amount of the loan will depend on where you live.)  I believe the standard maximum for FHA loans right now is $429k.

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