FHA home loans are great for first time buyers who don't have a 20% down payment for a conventional loan. Pretend for a moment that you wish to buy a home priced at $450,000 and you're the lucky winner of the multiple bids on the house.
A 20% down payment for a convential loan would be $90,000 down payment. It takes time and dedication for first time buyers to save $90,000. All of your equity is tied up in the house you live in now. Meanwhile, home prices continue going higher, and soon, youi can't afford the house you really want. Plus, interest rates are at a historic low right now on October 22, 2020. You can get a conventional loan with no points for about 3.25%. Meanwhile, you could get an FHA loan at 2.5%. Loan rates fluctuate 3-4 times daily.
A $450,000 house with a 20% down payment leaves a loan balance of $360,000. Your payment on just the loan would be $1,566.74. Add $650 for tax escrow and $80 for insurance escrow, and the total payment would be $2,296.74.
A $450,000 house with a 3.5% down payment of $18,000 at 2.5% interest rate on the loan would give you a loan amount of $431,100. The loan payment would be $1,703.37. Add your escrows for taxes and insurance, and your monthly payment would be $2,433.37.
The difference between the conventional loan with a $90,000 down payment, and the FHA loan with just 3.5% down, $18,900, with a loan payment per month with an interest rate of 2.5% is just $1,703.37. Add in escrows for taxes and insurance and you get an FHA loan paymnent of $136.63 per month.
Why are FHA and VA loan interest rates so much lower than conventional loan rates? It's because FHA and VA loans are guaranteed against default by the federal government.
If you have moved more than 100 miles from a house you own with an FHA loan, you qualify for another FHA loan. Put tenants in your previous home and let them pay your house payment for you, and maybe have a little extra cash flow. If your family size has changed significantly, you could qualify for another FHA loan.
Call Markita now at 703-929-2274 to visit about your options.