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An Honest Guide to FHA Loans

What is an FHA Loan?

The FHA was created in 1934 as a reaction to the Great Depression, a time that saw foreclosures and defaults rise sharply. As a way to keep the housing market stable, the FHA offered insurance to lenders, increasing borrower power, making it safer for lenders to grant loans, and stimulating the housing market. FHA Loans are insured by the Federal Housing Administration and granted by federally qualified lenders – Like Semper. This loan is typically geared toward those looking to put forward a smaller down payment. It is also popular with first time home buyers. It is popular because the FHA Loan allows prospective home buyers to borrow up to 96.5% of the value of the home, therefore making the required down payment as low as 3.5%. Another feature that makes the FHA Loan popular is that the 3.5% down payment requirement can come in the form of a gift or a grant, opening up possibilities for a wider range of borrowers.  

Who Can Apply For an FHA Loan?

Many people benefit from FHA Loans, especially lower income buyers. Those with credit scores of 500-579 may qualify for a loan of up to 90% of the home’s value, allowing the borrower to put as little as 10% down. Those with credit scores of 580 or higher may be approved for an FHA Loan of up to 96.5%, making their down payment as low as 3.5%. Those without credit history can also apply for an FHA Loan. Instead of relying on a credit report, Semper can use rental payments and utilities as a way to prove credit worthiness. In some cases, even those who have gone through bankruptcy or foreclosure can apply for an FHA Loan.  

What Can an FHA Loan Be Used For?

The most popular type of FHA Loan is the The 203(b) FHA Fixed Rate Mortgage Loan Program. This loan has a fixed rate, which means the interest rate stays the same for the life of the loan. In other words, the monthly Principal and Interest payment for these loans will never change. FHA Loans are designed for 1-4 family, primary residence homes. As a matter of convenience for you, Semper offers both 15 and 30 year terms. Another popular FHA Loan is the 203(k) Rehabilitation Mortgage Loan Program. This loan allows buyers and current owners to finance up to $35,000 into their mortgage for repairs, renovations, or upgrades. These loans can even be granted to those looking to sell their home, but first want to renovate to make it more marketable. It is also popular for those who would like to finance renovations to make a new home move-in ready. The FHA also backs HECM Loans – or Reverse Mortgages- and more.  

What’s the Catch?

There isn’t a catch, but there are a few things to keep in mind. Not all lenders choose to or are permitted to offer FHA Insured Loans. Semper Home Loans is FHA approved but not all lenders are. Also notable, FHA Loan interest rates are not always the same; As a borrower’s credit score and down payment ability lessen, the interest rate on the loan may rise. Lastly, the FHA sets limits on the amount of a loan they will insure, meaning some properties may not qualify. These limits can vary by state or sometimes county.  That being said, once the basics are covered, there isn’t much of a catch to FHA Loans- they improve lending security, increase home ownership, and assist new home buyers as well as those with lower credit or income. At Semper we know the ins and outs of FHA Loans. For first time home buyers we even offer a free consultation where you can speak with one of our experienced loan originators about FHA Loans. We also offer grant programs, like the HALO program, that work in conjunction with FHA Loans and can help many borrowers get into their homes faster, easier, and smarter.   To get started you can set up a free consultation for first time home buyers, or begin the loan application process online.

Categories: Choosing a Loan, FHA Loans, First-time homebuyers, Loans

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