Understanding FHA loans

Real Estate Broker/Owner with Nick Galiano Realty

This week we are going to dive into the world of FHA and how this popular loan is getting more buyers into homes. In fact, 46% of first time home buyers in 2012 used the FHA program to buy their new home. FHA was first enacted in 1934 under the US Housing Act and has assisted millions of Americans in reaching their goal of home ownership.

Why use FHA? Some of the advantages include: a lower down payment (3.5%), lower closing costs, seller concessions of up to 6% of the purchase price to pay towards closing costs and pre-paids, down payment can be a gift, loans are assumable with credit approval, low competitive interest rates.

The loan limits for FHA in Orleans, Jefferson, St. Tammany, St. Bernard, St Charles and St. John are the following: Single ($287,500), Double ($368,050), Tri-Plex ($444,900) and Four-Plex ($552,900).

One of the downsides of FHA loans is the MIP (Mortgage Insurance Premium). This is 1.75% of the loan upfront and 1.35% for the life of the loan if the loan to value is over 90%. If the loan to value ratio is under 90%, then the MIP will be for 11 years. This only applies to loans that are over 15 years in length.

FHA does offer other loans like the FHA203K for doing minimal renovations. They also offer an Energy Effivient loan. It alows borrowers to finance 100% of the cost of adding eligible energy efficient improvements into a new home purchase or the refinancing of existing housing.

There are advantages and disadvantages to everything, but this does apply to the FHA loan. You can get into a house with little money, but you do have the MIP hanging over your head every month.

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