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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Different Types of FHA Mortgage Loans
FHA loans remain one of the most popular loan programs available today for first-time home buyers and move-up buyers alike.
Today we are going to discuss the latest requirements for FHA loans. This post will cover different types of FHA mortgage loan programs like standard FHA purchase loan, FHA 203 (K), FHA streamline refinance, FHA cash-out refinance.
1 - Standard FHA Purchase Loan.
For standard FHA purchase loans, the current loan limit is $314,827 for most of the locations throughout our country.
There are select high-cost locations that permit higher amounts. The minimum down payment required is 3.5%.
The FHA standard purchase loan comes in 30 years and 15 years of fixed terms. Since this is a government-backed program, there are no prepayment penalties.
Most of the lenders and banks which are providing FHA standard loans would require a minimum of 580 to 620 credit score for a maximum of 96.5% financing. The credit score requirement may vary from lender to lender.
Homebuyer’s closing costs can be paid by the seller up to 6%, which is more than enough to cover the closing costs and pre-paid escrows.
FHA program requires the buyer to pay the FHA mortgage insurance premium, which can be rolled in the loan amount.
Standard FHA mortgage loan could be availed for any single-family home, townhome or FHA approved condo as long as it meets the basic FHA requirements.
Gift Funds are permitted for down payments if you are acquiring an FHA mortgage loan.
FHA also allows non-occupying co-borrowers. An individual can get a co-borrower who is not necessarily occupying the home with the primary borrower to ensure the income qualification requirement is met.
FHA loan program requires very low cash reserves compared to other conventional loan programs. Hence, making FHA loans an excellent option for first-time homebuyers to save money.
2 - FHA 203K Loan
FHA 203K loan is a unique renovation or “rehab” mortgage that provides financing for both purchase and renovation/repair of a home.
A home may require new air-conditioning, a new roof, or any other thing to make it more liveable.
There is a cap on how much a buyer can finance; however, the buyer can finance not only the cost of the property but also roll in the cost to do these repairs.
The amount of the loan is based on the appraised value. The appraisal is based on the “after improved value” of the home.
FHA 203K loan requires a minimum of 3.5% down payment, which is only in the case of a primary residence and not investment homes.
3 - FHA Streamline Refinance
Refinance is only for the homeowners who already have FHA loan and are looking to reduce their interest rate on their mortgage.
Just like the name applies, this is very streamlined; there is no requirement for appraisal, homeowners can be underwater or upside down with their current FHA mortgage.
This means the homeowners can owe more on the mortgage than what their home is worth. Streamline refinancing documentation and process is very easy and straightforward.
Detailed information about the FHA streamline refinance is updated in our blog post “Know More About FHA Streamline Refinance.”
4 - FHA Cash-Out Refinance
FHA cash-out refinance is for the homeowners who have significant equity in their homes. If they want they can cash-out some of their equity, maybe to consolidate debts or for home renovations, additions, or repairs in their homes.
The loan to value for FHA cash-out refinance is limited to 85%. This program is excellent for homeowners who have good equity in their home and want to use it for some significant expense.
This program will require a new appraisal that would be verified in the process.
Conclusion
Although an FHA mortgage loan could seem one of the most beneficial options when it comes to home buying or refinancing, it comes with mortgage insurance which would be part of your monthly payments.
We would suggest speaking to your trusted loan officer and review all the possible loan options to make a well-informed decision.
It’s interesting how loans can help you complete a house purchase by financing it. My uncle wants to try owning a house around the countryside so he could retire to it in the future. I should suggest that we look around for a financial institution that’ll guide him for this