A Federal Housing Administration loan, or FHA, is a great loan to have. The FHA provides insurance-backed mortgage loans through approved FHA-lenders.
This loan protects lenders from losses that may arise from a defaulted loan. This loan only works for single/multifamily properties within the U.S. and it's territories. This makes lending easier and borrowers can receive more attractive rates.
Below are 4 things to know when applying for a loan of this kind.
1. Keep Current
In April 2013, the FHA announced a couple of changes to the loan, including a higher MIP (annual mortgage insurance premium) and mortgage insurance payment for the duration of some FHA home loans.
According to the FHA official site, "FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by 0.10 percent. FHA will increase premiums on jumbo mortgages ($625,500 or larger) by 5 basis points or 0.05 percent, to the maximum authorized annual mortgage insurance premium."
The site also states, "These premium increases exclude certain streamline refinance transactions. FHA will also require most FHA borrowers to continue paying annual premiums for the life of their mortgage loan."
Before selecting your loan terms, check the FHA website to find out the nitty gritty on what an increased MIP could mean for you.
2. Loan Limits
In searching for loan limits for FHA loans, you will find that there isn't an overarching "maximum" limit.
The limit is usually set by county and is primarily based on market conditions within that area.
The good thing is that the FHA provides a downloadable PDF in the Mortgagee Letters section of the official website of loan limits for FHA lenders.
3. Check Your Credit Score
Unlike other loans, the FHA doesn't have a minimum credit score you have to meet.
Your credit score will be reviewed in context and even if you have a bankruptcy, you can still be eligible.
However, an FHA lender may ask for a minimum credit score just to be sure that the capability of paying the loan back is present. It's great to check your score beforehand so you know your credit story.
Once you can clearly point out they "whys" and "hows" of your credit history, you can most likely appeal to the lender if your credit score is below the minimum.
4. Closing Costs
Through an FHA loan, closing costs may not fall all on you. FHA does allow lenders, sellers, and builders to cover some closing costs for the buyer.
However, some lenders do charge a higher rate if they agree to cover closing cost. A good determent is the GFE (good faith estimate): a form that provides you with basic information about the terms of a mortgage loan for which you have applied and estimated costs to you in acquiring the loan.
The lender has three days to provide you with one. You can shop around and see which best fits your needs or if there is any room for the negotiation. (Definition for GFE can be found at here.)
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Shayla Mars is a Brooklyn-based journalist, who regularly writes for MyBankTracker.com.