New Jersey's leading FHA mortgage lender for the past 30 years.
What is an FHA loan?
An FHA loan is a type of government-backed mortgage insured by the Federal Housing Administration, an agency of the U.S. Department of Housing and Urban Development. Borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
Why people get FHA loans
Because of the government-backed mortgage insurance, The Loan Tree can — and does — offer FHA home loans at attractive interest rates and with less stringent and more flexible qualification requirements. In addition to minimum credit scores and down payments, FHA loan requirements also include proof of stable income and employment, and an appraisal by an FHA-approved appraiser.
Here are six facts that borrowers should know about FHA loans
- Less-than-perfect credit is OK
Minimum credit scores for FHA loans depend on the type of loan the borrower needs. To qualify for an FHA loan with a down payment as low as 3.5 percent, the borrower needs a credit score of 580 or higher.
Those with credit scores between 500 and 579 must make down payments of at least 10 percent. People with credit scores under 500 generally are ineligible for FHA loans. The FHA will make allowances under certain circumstances for applicants who have what it calls “nontraditional credit history or insufficient credit” if they meet requirements. Feel free to ask us if you qualify.
- Minimum down payment is 3.5%
For most borrowers, the FHA requires a down payment of just 3.5% of the purchase price of the home. That’s a “huge attraction,” says Arthur Kelly at The Loan Tree due to the fact FHA borrowers can use their own savings to make the down payment. But other allowed sources of cash include a gift from a family member or a grant from a state or local government down-payment assistance program.
Ready for a mortgage with a low down payment?
- Closing costs may be covered
The FHA allows home sellers, builders and lenders to pay some of the borrower’s closing costs, such as an appraisal, credit report or title expenses. For example, a builder might offer to pay closing costs as an incentive for the borrower to buy a new home. This is known as a seller concession.
Seller concessions can not exceed 6% of the contract sales price and are a useful tool to assist buyers with the necessary cash to close requirements.
The Loan Tree also offers "Lender Credits" up to $5,000 to further assist buyers with the necessary cash to close requirements. Just ask us about this valuable incentive!
- Lender must be FHA-approved
Because the FHA is not a lender, but rather an insurer, borrowers need to get their loan through an FHA-approved lender such as The Loan Tree. Not all FHA-approved lenders offer the same interest rate and costs — even on the same FHA loan. Always remember that our FHA rates average .25% less than the national average.
Costs, services and underwriting standards will vary among lenders or mortgage brokers. That's why so many borrower's have selected The Loan Tree for their FHA mortgage needs as our rates and fees are among the lowest you can find in the mortgage industry.
- Two-part mortgage insurance
Two mortgage insurance premiums are required on all FHA loans: The upfront premium is 1.75 percent of the loan amount — $1,750 for a $100,000 loan. This upfront premium is paid when the borrower closes the loan and is not required out-of-pocket as it can be financed as part of the total loan amount.
The second is called the annual premium, although it is paid monthly. It varies based on the length of the loan, the loan amount and the initial loan-to-value ratio, or LTV. The above mentioned premiums are for FHA loans up to $679,650.
- You can borrow cash for repairs
The FHA has a special loan product for borrowers who need extra cash to make repairs to their homes. The chief advantage of this type of loan, called either an FHA 203K (Full) or an FHA 203K (Limited), is that the loan amount is not based on the current appraised value of the home, but on the projected value after the repairs are completed.
The FHA 203K (Limited) allows the borrower to finance up to $35,000 for nonstructural repairs, such as painting and replacing cabinets or fixtures.
Why not call or email us for additional information at 732-988-5000 202 or akelly@theloantree.com. Or you can click here MORE INFORMATION and we will respond to your request as soon as possible.