In the first part of this article we talked about many of the benefits of the FHA loan program in Minnesota. In this part
we’ll talk some more about the unique aspects.
Minnesota FHA Programs
Most Minnesota buyers today are opting for the fixed rate programs offered by FHA. These are available in 30 year fixed rates as well as 15 year. While most buyers will shy away from adjustable rate mortgages (ARM) in a low rate environment for good reason, FHA also offers ARMs that become popular in a rising rate environment. With these loans the rate is fixed for an initial period of time (1 year, 3 year, or 5 years). These loans start a rate lower than a fixed rate would and have caps which limit the amount the rate can change both annually as well as over the lifetime.
FHA Mortgage Insurance
In order to get a mortgage loan in Minnesota with less than a 20% down payment, you will in most cases pay something called mortgage insurance. In short, mortgage insurance pays off part of a lender’s losses in the event of a foreclosure. FHA charges mortgage insurance in two ways: 1) An up-front mortgage insurance premium (UFMIP) and 2) a monthly mortgage insurance premium. The premiums vary based upon the amount of your down payment as well as the mortgage term (30 year or 15 year).
The monthly premium can be eliminated after a minimum of 5 years of payments have passed. At that point, if it can be established that you have 22% equity in your property based upon the original appraised value, you can ask your mortgage servicer to remove the monthly mortgage insurance from your monthly payments.
The FHA Appraisal
One of the most important aspects of an FHA loan is the appraisal. If you opt for this type of financing we need to order an appraisal from an FHA approved independent appraiser.
While the appraisal of the property is done primarily to assess the value of the property you are trying to purchase, the Minnesota FHA appraiser is also charged with looking for certain types of property deficiencies that have been identified as issues by FHA. For example, if you are buying a house that is older than 1986, the appraiser will be looking for chipping paint on any building on the property. If they identify chipping paint, the area will need to be scraped and painted prior to being able to close on the home.
You should not confuse the role of an FHA appraiser with that of a home inspector. Even though the FHA approved appraiser will look for certain property issues, it is not their primary concern. A home inspector will spend several hours in the property looking for issues that may cause you problems down the road. Although a home inspection is not required in order to obtain an FHA loan, it is highly advised to get one in addition to the FHA appraisal which is required.
FHA loans are Assumable
Imagine six or seven years from now when you are ready to sell your home. If interest rates are higher when you go to sell your home you will have an attractive sales feature because your loan will be assumable. FHA allows you to sell the home to a buyer who can qualify for your loan using the assumable feature. Your buyer simply needs to make up the down payment between your sales price and the amount you owe. They take over your loan from there and release you from liability.
FHA Preapproval
Is a Minnesota FHA loan right for you? The only way to find out is to get preapproved for financing. By analyzing your entire financial situation I can help you discover whether a FHA loan or another type of financing is best suited to your individual situation.
Read more about FHA loans in part 1 of this article.
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