FHA Loans are used to help more people buy homes. More specifically, they are easier to qualify for. They are available to borrowers with credit scores as low as 580 and only require a minimum 3.5% down payment (can be higher for lower credit scores) for buyers that are short on cash. FHA requires that the property be in good condition and are generally defined as follows:
- Health and safety issues
- Protecting the security of the property, and
- Structural soundness of the property.
Although FHA-insured mortgages come at a higher cost than a conventional mortgage, this expense could be worthwhile for those who want to own a home and can’t qualify for a conventional mortgage. FHA loans are insured by paying FHA mortgage insurance. Unlike conventional loans that allow the seller to contribute 3% of the purchase price towards the buyers closing costs (should cover most, if not all, of the buyer’s closing costs), FHA buyers can ask up to 6% in closing costs. The main reason for the higher closing cost is the FHA Mortgage Insurance, which is an upfront premium of 1.75% of the loan amount (Could be paid with seller paid closing costs). In addition, the borrower is going to pay an annual premium (typically ranges between 0.45% and 1.05% of the loan depending on the loan amount).
FHA Loan Example
Here is a real world example of $234,000 home purchase that I recently sold with a FHA Loan:
- The upfront premium of 1.75% of the loan amount (in this case, the amount is $229,761) is $3,951.68.
- The monthly FHA-insurance premium is $158.83 per month, or $1,905.96 annually (or 0.83% of the loan amount).
In this case, the closing costs were $12,367.45 or about 5.29% of the purchase price. Although the seller provided a seller credit for a portion of the closing costs, the purchaser still had to come out-of-pocket for closing costs (i.e. escrows for both homeowner’s insurance and property taxes, HOA assessments, etc.). It should be noted that the borrower applied the 3.5% minimum down payment (or $8,190) and prepaid the for the appraisal.
In the Real Estate Market?
You should consider using a realtor. I could save you money especially with new home builders and it does not cost you anything. So why not? Let me save you money!!! If you are interested in buying real estate (new home, existing home, or commercial property), please contact me (Alan Lane with Keller Williams Realty a.t 2119 W Brandon Blvd, Brandon, Florida 33511). As a life long resident of Central Florida, I can help you find the right property for you whether it is in Lakeland or as far south as Sarasota. The Keller Williams offices of ”Suburban Tampa” include the offices in Brandon, Plant City, Fishhawk Ranch, and our newest office in Valrico. My email address is email@example.com, or call me at 813.205.9280. If you are just starting your search, you can search the MLS for real estate opportunities on my website at this link