The Federal Housing Administration (FHA) helps people to qualify for home loans by backing them. It does this by insuring the loan. This is to protect lenders in case the borrower defaults. But most people may not know that there is more than one type of FHA loan program.
The most popular one is the FHA 203(b), a program that caters to single-family home loans. Here are a few things you should know about this FHA loan program offered by lending institutions such as Primary Residential Mortgage, Inc.
You can apply for an FHA 203(b) insured home loan from an FHA-approved lender. Generally, you must have a credit score of 500 or higher to qualify. You may use the loan to either buy or refinance a home in a city or rural area as long as it is a primary residence.
This includes any home as long as it has a permanent foundation and it passes minimum FHA requirements. You can choose either a 15- or 30-year loan term, and you negotiate the interest rate with the lender.
The FHA requires just 3.5% down payment for borrowers with credit scores of 580 and up, and 10% for those with scores of 500 to 579.
The key to an FHA-insured loan is the mortgage insurance. This is the reason lenders agree to the loan in the first place. Borrowers have to pay an upfront mortgage insurance premium. This is 1.75% of the total loan amount.
Aside from this, there is an annual insurance premium (paid monthly) ranging from 0.45 to 1% of the loan amount. The FHA also requires that the total monthly payment for the mortgage is not more than 31% of the borrower’s income.
The total debt of the borrower including the mortgage should not be more than 43% of the income.
The FHA does not actually loan money. They only back the loan for which you have to apply from a private lender. However, you can only get an FHA loan from lenders approved by the FHA.
Check if a lender is on the authorized list on the Department of Housing and Urban Development website it before contacting them.
The FHA 203(b) is the most popular FHA loan program for getting a home loan with low down payment for people with low credit scores. There are some conditions for getting one, but overall solves many problems for homebuyers with issues.