3.5% Down Payment

CALIFORNIA FHA PURCHASE LOANS
A FEW BASIC QUESTIONS ABOUT FHA LOANS

What is an FHA loan?

The FHA loan is a Federally insured mortgage that is designed to advocate home ownership among home buyers who may not qualify for a conventional loans by expanding the guidelines for borrowers and reducing the risk for lenders who fund these loans.  Like conventional mortgages, the FHA loan can be written for 30 years or less and offers a fixed payment as well as requiring the borrowers meet certain qualifications.

What are some ways Conventional and FHA mortgages differ?

FHA loans require only 3.5% down wheras a conventional loan requires 5% down.  FHA has expanded the debt-to-income ratio making it easier for a borrower to qualify for the payment.  FHA has BOTH an upfront mortgage insurance premium that is financed into the loan in addition to a monthly mortgage insurance added to the payment.  Conventional loans have more options for how the borrower takes on the mortgage insurance.  Conventional loans give the borrower 3 choices:  Monthly, Up Front, or in the form of a higher interest rate. 

FHA mortgages tend to have lower interest rates than conventional loans (ex. 30 year fixed vs. 30 year fixed).  FHA is more lenient on some deragtory credit issues like collections, bankruptcies and foreclosures.   FHA is generally more lenient on reserve requirements and fico score does not affect the interest rate as much as it does on a conventional loan.

If an FHA loan only for first time homebuyers?

No.  Although these loans tend to be popular among first time home buyers, one doesn't need to be a first time home buyer to get one.  The home MUST be a primary residence and typically FHA will only let a borrower have one FHA loan at a time, unless there is a justifiable reason the buyer needs another FHA loan including, but not limited to, a job / military relocation, a divorce, or a medical necessity

What if I have credit issues?

One of the advantages of the FHA loan is that they can be somewhat more lenient when it comes to derogatory credit issues.  For example, the waiting period after a foreclosure, is generally 3 years, but with an extenuating circumstance, it can be 1 year.  With a conventional loan, the waiting period is typically 4-7 years and with extenuating circumstances it's 3-4 years. 

After a Chapter 7 bankruptcy, the normal waiting period is 2 years, while for a conventional loan it's 4 years. Again, extenuating circumstances will shorten both of these periods.  Medical collections are not required to be paid off.  And as mentioned earlier, the impact that one's fico score has on the interest rate is not as extreme as it is for a conventional loan.

For more information about credit issues & FHA loans,
CLICK HERE


What is the FHA mortgage insurance and how long does it last?

FHA imposes mortgage insurance in two ways.  One is called the upfront mortgage insurance premium (UFMIP) and the other is an annual mortgage insurance that is paid monthly.  Both of these amounts can change over time as FHA determines what's required.  The mortgage insurance is used to cover the claims FHA pays on loans defaulted by FHA borrowers.  In April 2013, FHA changed its mortgage insurance factors as such:





And this chart tells how long the annual (paid monthly) mortgage insurance lasts.



Can I refinance if I have an FHA mortgage?

Yes, there is a special type of refinance called the Streamline FHA refinance that is designed for homeowners who have an FHA loan and want to reduce their interest rate & payment.  The FHA streamline refinance does not require an appraisal.  It's important to time the close at or near the end of the month.  FHA collects a full month of interest regardless of when the loan closes, so to avoid paying days of double interest, close (fund) as close to the last day of the month as possible.


Will I get a refund of the UFMIP if I refinance?

If you refinance within 3 years of the date the loan originated, yes you can get a prorated refund of the UFMIP you paid.  Below is a chart that will track the percentage of the prorated refund of the UFMIP.




Can I buy a fixer upper with an FHA loan?

There is a program specifically designed for buyers to purchase a home that needs rehabilitation.  It's known as the FHA 203k loan or rehabilitation loan.  There are 2 types of FHA 203k loans:  The FHA streamline 203k loan (not to be confused with the FHA streamline refinance) and the FHA Standard 203k loan.  In essence, you can do nearly any type of remodel you would want with the FHA Standard 203k loan, but there are important details to know about each of them.  For more details click here:
California FHA 203k Loan.

Do all lenders provide the same service & benefits?

While there are many lenders who originate FHA mortgages (as well as other types of mortgages), there can be a significant difference in the service level, the product offered, and therefore the outcome. As a buyer, it goes without saying that your satifaction is the most important part of the process.  Having both the RIGHT person for the job and the RIGHT lender for the transaction is critical for ensuring you get the right outcome.  Check out the article:
Find The Right Loan

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