What is a FHA home loan?
The Federal Housing Administration (FHA) is a United States government agency created as part of the National Housing Act of 1934. Since the mortgage meltdown of 2007 FHA’s role in helping home buyers has increased significantly.
The share of home purchases financed with FHA mortgages went from 2 percent to over one-third of mortgages in the United States, as conventional mortgage lending dried up in the credit crunch.
With the sub-prime loans now a thing of the past FHA has stepped in to help borrowers with less than perfect credit or minimal down payments achieve the American dream of home ownership.
Unlike many of the sub-prime loans, borrowers today must prove enough income to qualify for the new monthly payment. This should insure that the loans approved today are a better quality than those of the sub-prime boom.
What are the advantages of an FHA loan?
Many of our clients ask us “What are the advantages of a FHA loan as opposed to some other type of mortgage loan”. One of the biggest advantages of a FHA loan is the low down payment required.
FHA only requires a 3.5% down payment and the funds can come from various sources.
The 3.5% requirement can be satisfied with the borrower using their own cash (money in the bank not cash on hand) or receiving a gift from a family member, their employer, labor union, or borrowing from their 401k. It is important to note that there must be a clear paper trail as to the source of the down payment. In other words, mom and dad cannot give you $6000 that was under their mattress. Any gifts must also come with a letter signed by the family member stating the funds were a gift and not a loan.
Do I have to pay mortgage insurance?
All FHA loans will have mortgage insurance. This is an insurance that protects the lender against losses that they would normally take in the event your home goes into foreclosure. There are two types of mortgage insurance that you must pay with an FHA loan, up-front mortgage insurance and monthly mortgage insurance. The up-front is a 1% of the loan amount and is added to the loan or paid in cash up front. The monthly mortgage insurance is 1.35% of the loan amount divided by 12 months. This total is added to the monthly payment and decreases slightly each month as your loan amount goes down. Monthly mortgage insurance is now required to remain on the loan for the life of the loan.
What is a FHA streamline?
Streamline refinances are a simple way to lower your monthly payments on an FHA loan by lowering your interest rate.
The FHA streamline refinance is a special mortgage product, reserved for homeowners with existing FHA mortgages. FHA streamline refinances are the fastest, simplest way for FHA-insured homeowners to refinance their respective mortgages.
The FHA streamline refinance program’s defining characteristic is that it does not require a home appraisal. Instead, the FHA will allow you to use your original purchase price as your home’s current value, regardless of what your home is actually worth today.
In this way, with its FHA streamline refinance program, the FHA does not care if you are underwater on your mortgage. Rather, the program encourages underwater mortgages. Even if you owe twice what your home is now worth, the FHA will refinance your home without added cost or penalty. The advantages to of an FHA streamline are limited documentation required and in most cases you can use the original appraisal to determine the value. So even if your home has decreased in value you may still be able to lower your monthly payment. With a streamline refinance you are guaranteed a lower monthly payment. A lender cannot refinance a loan unless there is at least a 5% reduction to the monthly payment. This guarantees the consumer will not refinance for too little of a savings.
Are you ready to move forward with a purchase or refinance? Please give us a call at 888-810-1459 and let us help you secure financing for the purchase of a new home or save you money on the refinance of your existing home. Be sure to ask your loan officer about our closing costs incentives and our low rate guarantee!
Disclaimer: The information contained in this article has been prepared by an independent third party and is distributed to consumers for educational purposes only. The information is considered reliable but not guaranteed to be accurate. The opinions expressed in this article do not represent the opinions of Skyline Home Loans. Please consult with a licensed loan officer for expert advice regarding financing or refinancing a home.