What is an FHA Loan?
Short for a Federal Housing Administration loan, an FHA mortgage is a loan which is originated by federally approved lenders, such as Nations Lending, under guidelines established by the FHA, which insures the lender against default. FHA programs address a couple of the largest hurdles for first-time home buyers: credit history, and down payment. Nations Lending sees that most FHA loans are used to qualify low to moderate income borrowers who are unable to make a large down payment which most likely would qualify them for a conventional loan program.
Under the program guidelines, qualified FHA borrowers are able to finance the purchase of a home with as little as a 3.5 % down payment. This down payment may come in the form of the borrowers own funds, a gift, or a grant from a state or local government’s down-payment assistance program. Another attractive feature of the program helps borrowers who have less than ideal credit. Currently FHA loans allow borrowers with as little as a 580 FICO score to obtain financing under some scenarios and pricing adjustments.
All of this opportunity, however, comes at a cost. FHA borrowers can expect to be charged with two Mortgage Insurance Premiums in order to obtain financing under the program. The first is an up-front fee of 1.75% of the total loan amount. This is to be paid in full or rolled into the loan amount at origination; the second is an annual premium which is based on the borrower’s loan-to-value ratio, loan size and term of the loan. This annual premium will be added to the borrowers calculated monthly payment schedule.