7 Things You Need to Know About FHA Loans

Since the housing bubble collapsed in the early part of the decade, FHA loans have taken on a greater importance for those looking to obtain a mortgage on a new home. These types of loans are backed by the government's Federal Housing Authority, which helps lower their risk by requiring borrowers to obtain mortgage insurance when acquiring an FHA loan.

If you are interested in buying a new home from Trusst Builder Group's builders in Southport NC and you want to buy the home using a FHA loan, then here are seven important things you need to know about this type of mortgage loan.

FHA Loans Require Little Money Down

Unlike other types of home loans, which can sometimes require as much as 20% down, most FHA loans require only 3.5% of the home value down. In addition, where the down payment money comes from isn't as closely regulated when applying for a FHA loan. The funds can come from your own savings, a cash gift from a family member, or even from a grant from a down payment assistance program.

Credit Requirements are Less Strict with FHA Loans

Getting a home mortgage is still tough in today's real estate market, but FHA loans do make it a little easier thanks to their less strict mortgage requirements. Ideally, lenders prefer borrowers with at least a 580 credit score, but borrowers with lower credit scores have been approved. The unofficial approval cut-off is a credit score of 500 or less, and those with credit scores between 501 and 579 are usually restricted to borrowing 90% of the home's value, meaning they have to put at least 10% down in order to secure the loan.

Closing Costs are Sometimes Covered

In some situations, some or all of the buyer's closing costs can be covered by the seller, the lender, or the builder when the home is bought using a FHA loan. For example, a borrower can negotiate with their lender for them to cover the cost of closing in exchange for a slightly higher interest rate.

Borrowers Must Have Mortgage Insurance

In order to get approved for a FHA loan, a borrower must buy mortgage insurance. This policy consists of two types of premiums – an upfront premium equal to 1.75% of the loan amount (paid at the time of the loan granting, but also available to be financed in with the loan) and the annual premium which varies depending on the length of the loan.

Borrowers Can Only Get a FHA Loan from a FHA-Approved Lender

Not all lenders are qualified to offer FHA loans. Since the FHA is not an actual lender, the loan must come from a lender that has been approved by the organization. Keep in mind, however, that not all FHA-approved lenders offer their loans at the same rate, so it still pays to shop around before making a selection.

Borrowers May Be Able to Get Extra Cash for Home Repairs

If the borrower is buying a home that needs a lot of non-structural repairs, then applying for a FHA loan can enable them to finance as much as $35,000 in a 203(k) loan. This gives the home buyer the financial flexibility to make the necessary improvements in their new home.

FHA Loans Offer Hardship Services

FHA loans might require borrowers to have mortgage insurance, but that doesn't mean that FHA lenders won't work with a borrower should they suffer a financial hardship. In fact, FHA loan borrowers may be eligible for loan modifications, a temporary period of forbearance, or deferral payment periods to help protect their homes during such hardship periods.

Ask Trusst's Builders in Southport NC about FHA Loan Options

Trusst's builders in Southport NC want to help you get into the home of your dreams, but they also want to help ensure you get the right mortgage for your needs. Visit Trusst Builder Group today or schedule a consultation with one of our builders in Southport NC and let us help you determine which type of home best meets your family's needs, wants, and budget. Just give us a call today at 910-371-0304 to see what we have to offer.