What You Need to Know about FHA Loans in Houston
Applications for government-backed FHA loans are pouring in after the government insurer of home loans recently announced it has lowered annual insurance premiums by 0.5 percent. This is the first time since 2001 that mortgage insurance has dropped, and the new rate of 0.85 percent is expected to save the average FHA-financed homebuyer around $900 every year on their mortgage payments.
The new low rates are expected to entice 250,000 new home-buyers to enter the market within the next 3 years. With so much interest in FHA loans from new homebuyers, now is a great time to take a moment and explain some key facts about these government backed loans.
Here’s what you need to know about FHA loans in Houston and across the country:
- What are FHA loans? An FHA loan is a mortgage that’s insured by the Federal Housing Administration. It’s a government-backed home loan that requires borrowers to pay mortgage insurance in order to protect the lender in the event that the borrower defaults on the loan.
- Why get an FHA loan? In addition to the recent rate drops in mortgage insurance, FHA loans are attractive because they aren’t as strict with their qualification requirements. Even those with low credit scores can qualify for an FHA loan in some cases, provided they make the required down payment required by the lender. The added flexibility makes these loans a good option for some new homebuyers.
- What if you have decent credit? While those with a credit score between 500 and 579 are required to make a down payment of at least 10 percent, borrowers with a credit score of 580 or higher are only required to make a down payment of just 3.5 percent of the home’s purchase price. This makes FHA loans highly attractive for homebuyers. Borrowers are allowed to make the down payment using their personal savings, a gift from a family member, or a grant from a state or local government down payment assistance program.
- What about closing costs? The Federal Housing Administration lets sellers, builders, and lenders cover some of the borrower’s closing costs, including title expenses, credit report fees, or appraisal. So, if you get an FHA loan, it’s possible that the closing costs may be paid for.
- Who are the lenders? Remember, the FHA isn’t a lender, but instead, an insurance fund. That means that borrowers have to go through FHA-approved lenders, not directly through the FHA. It’s important to keep in mind that FHA-lenders may offer different interest rates and costs from one another, so you need to do your homework and shop around when looking for FHA loans in Houston and elsewhere.
- Is mortgage insurance required? Mortgage insurance is absolutely a must with FHA loans. In fact, two mortgage insurance premiums must be paid on any FHA loan. There’s the upfront premium which is a percentage of the loan amount, and that’s paid when the homebuyer gets the loan. This amount can be financed as part of the total loan. The other premium is the annual premium, and it’s paid monthly with its rate determined by the length of the loan, the total amount borrowed, and the initial loan-to-value ratio.
Want to Learn More about FHA Loans in Houston?
Are you interested in learning more about FHA loans in Houston? Let the experienced team at Mortgage Loans for Texas help you. We can answer all of your questions, and help you get qualified for an FHA loan at a great rate. Contact us today to learn more!