FHA loans are mortgages insured and backed by the Federal Housing Administration (FHA) and can be issued by FHA approved lenders. With low down payment requirements and attractive interest rates, these loans are great for 1st time homebuyers. Highlights of this program include:
1. Low Down payment
Minimum down payment is 3.5% of the purchase price and can come from multiple sources including family members, grants or government down payment assistance programs.
2. Lower FICO Score
Although FHA allows for FICO scores of 580 or higher with 3.5% down, many lenders have overlays and require a higher FICO score.
3. Seller Paid Closing Costs
The seller is allowed to contribute up to 6% toward closing costs and pre-paids which helps the buyer minimize cash to close. The seller’s contribution can’t be used for any part of the down payment.
4. Mortgage Insurance
There are 2 mortgage premiums required on all FHA loans.
• The upfront premium is 1.75% of the loan amount or $1,750 for $100,000 loan. This can be financed into the loan amount.
• The annual premium is paid monthly and is .85% for a 30 YR mortgage with 3.5% down.
5. Loan Limits in the 7 county metro
The maximum loan limit on a single family home in the Minneapolis metro area is currently $322,000. Check with your loan officer for areas outside of the metro area.
6. Assumable Mortgage
FHA mortgages can be assumable, provided the new buyer qualifies for the loan. This could be an incentive when selling if interest rates increase from current levels.