FHA – Still One Of The Best Mortgage Loan Options
I have heard that the Federal Housing Administration loans offer the best terms for mortgage financing. Is this still the case? If so, what are those terms…are the interest rates lower than those of conventional mortgages? Can any financial institution provide FHA financing? Are there income restrictions on the borrower and the type of property? Is there a maximum amount that can be borrowed?
The Federal Housing Administration (FHA) is an agency under the Department of Housing and Urban Development (HUD). It was established in 1934 to insure mortgages against losses resulting from defaults of borrowers, thereby giving lenders some confidence to make loans to higher risk loan types. It is the lenders that offer the loans and FHA provides the mortgage insurance. Guild Mortgage Company is an approved FHA lender.
In the past, rates and terms for FHA mortgages have been more favorable than those of conventional loans. Today, the lending industry has experienced some changes and FHA may not always have the best terms. However, down payment terms on a FHA loan continue to be very favorable, because only a minimum of 3.5% is required and you finance the balance of 96.5%. This could be a way for you to qualify for a 15 year or 30 year fixed rate mortgage.
Currently, interest rates on FHA loans almost mirror conventional loans. On any given day they could be almost the same, and then on another day they could be a lot different.
Factors that determine interest rates depend on property type, the credit score of borrowers, and loan to value.
Over the past year, there have been several changes in the cost of the FHA mortgage insurance, which is the insurance FHA provides to the lender against any losses in a default situation.
There are two types of insurance that the borrower has to pay on every loan. On a 30 year term there is the Upfront Mortgage Insurance Premium of 1% of the loan amount (this can be financed and added into the loan); second is the monthly Mortgage Insurance Premium (MIP) which presently is 1.10% to 1.15%. This has made the monthly payments more costly to some borrowers. An example: today the insurance on a $404,000 mortgage would be about $383.33 per month added to your payment — a year ago it would have been about $183.33 per month.
This MIP change is making borrowers think twice about doing an FHA mortgage. But the best thing about an FHA mortgage remains the minimum down payment of 3.5%. If you want to be sure that an FHA loan would offer you the best terms, you should review all the other mortgage products on the market today with one of our Guild Mortgage lenders. Other alternatives besides conventional mortgages could be USDA (U. S. Department of Agriculture Rural Development) or VA (Veterans Administration).
If you need a loan to finance a Department of Hawaiian Home Lands (DHHL) property, FHA is very good and one of the few programs available. The mortgage insurance terms are different and no monthly mortgage insurance is added to your payments. FHA financing is the most popular program for DHHL properties.
FHA will insure loans on residential properties such as single family, approved condominiums, and multifamily (1-4 units). FHA loans are available to owner occupant borrowers. They allow co-signers (related parties) and down payment gifts. There are no income limits or restrictions.
The maximum loan amounts in Hawaii vary with each county and are as follows for single unit properties (single family or condo): Hawaii $618,750; Honolulu $793,750; Kalawao $716,250; Kauai $773,750; Maui $790,000. Other loan limits for multi-family properties are higher.
In summary, does FHA have the best terms? The answer is yes and maybe. Buyers and borrowers should have a licensed loan officer review and evaluate their circumstances. Whether you are purchasing a property or refinancing, there are pros and cons. The best approach is to compare your situation to all available mortgage loan programs including conventional, FHA, USDA, and VA. Guild Mortgage Company is approved to offer all of these loan types and more.