Buying a house is an expensive venture. It might seem impossible, especially for people who have no significant savings. But thanks to programs like the FHA (Federal Housing Administration) loan, buying a property has become less complicated and more possible.
If you plan to buy your first house soon and are looking into applying for a mortgage through this option, you need to know that you are still required to pay a down payment. Here is everything you need to know about the process.
On FHA Loan Down Payments
One of the reasons the FHA loan is the preferred option of most first-time homebuyers is the small down payment it requires versus other loans. The typical down payment the Federal Housing Administration asks for is usually as low as 3.5 percent. In comparison, other loan providers could go as high as 20 percent of the total property value.
Here are the other details that you should know about it:
- Down Payment Rate: The down payment you need to provide depends on your credit score. If your credit score is 580 or higher, you need to prepare 3.5 percent of the total property value. However, should your credit score be lower than that, specifically between 500 to 579, do you still have a chance of getting approved? The only catch is that you need to afford to pay ten percent of the total property value as your down payment.
- Loan Provider: Note that the loan will not come from FHA. Instead, the loan will come from banks and other lenders that the Federal Housing Administration approves. The mortgage, however, would be insured under the FHA, helping you get your application approved faster.
- Options for Down Payments: Your down payment money can come from anywhere except the following: home builders, sellers, real estate agents or brokers, FHA loan down payment assistance, and anyone planning to sell the home you are eyeing.
Due to a low-rate mortgage, the FHA has become a more popular option for homebuyers, especially first-timers and those who do not have enough money to meet conventional loan requirements.
On Mortgage Insurance
Besides the down payment, approved FHA loan applicants should also pay for a mortgage insurance premium. Lenders need to protect themselves through insurance. Should the borrower fail to make payments, pass away, or become unable to meet the agreed terms, the policy would protect the lender.
There are two kinds of mortgage insurance premiums that you can choose from:
- Upfront Mortgage Insurance Premiums: The total amount you need to pay is 1.75 percent of the amount to be borrowed. You can pay it as a lump sum when you get the loan, or you can ask them to roll it along with your monthly mortgage.
- Annual Mortgage Insurance Premium: This option will give you a lower amount to pay, ranging from 0.45 to 1.05 percent. It all depends on how long you plan to repay your loan. The shorter the term, the smaller the insurance premium amount needed. The total amount you need to pay will be divided into 12 months and charged to your bill monthly. The FHA’s insurance premium is lower than the conventional provider is way smaller than the usual. The general mortgage insurance premium can go up to five percent of the original house value.
Buying a house is a dream of many. However, factors like the down payment can be the reason the dream does not push through. Thanks to programs introduced by the FHA, you can have a lower down payment and a higher chance of approval. All you need to know is to find the best plan for you, so you make the most of the money you have.
If you are a first-time home buyer and need help navigating the mortgage process of FHA, we can help you. Mortgage City is your leading local lender in Oakland County. From the first point of our contact to the closing of your new home, we assure you that your loan will be handled with speed, integrity, and quality customer service. Contact us today at (248) 930-8709 so we can help you find the loan that meets your financial needs.