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Technically FHA loans are for anyone, not just first time home buyers. But because of the low 3.50% down payment, lower credit score requirements, and easier underwriting guidelines, FHA mortgage loans are very popular with new home buyers.
FHA doesn't actually lend money. They just insure a portion of the loan, eliminating the lender's risk, and making it possible to get a mortgage that someone might not otherwise be able to obtain.
The homeowner pays a small upfront mortgage insurance premium (MIP), which is added to the loan amount, along with monthly mortgage insurance. While everyone hates mortgage insurance, these funds go into a default pool to cover any losses, making the FHA loan program possible.
In contrast to conventional mortgage products, which frequently require a minimum down payments of 5% or more of the purchase price of the home. This money can be your own money, a gift from a blood relative, or a gift or grant from a true community, state, or city program.
Typically borrower must pay, at the time of purchase, closing costs (the many fees and charges associated with buying a home, like appraisal, credit reports, state deed taxes, underwriting fees, title company fees, etc.) These can add up to a lot of money. Most mortgage programs allows the borrower to finance many of these charges into the loan, but just 3% of the loan amount. These leaves many people needing to make up the difference. FHA loans allow up to 6%, which almost always covers all of your closing costs.
Just like all loans, FHA home loans require borrowers to provide proof of sufficient income to pay the mortgage, and have acceptable credit scores. While FHA guidelines are generally more relaxed, FHA does not allow bad credit or sub-prime client.
FHA interest rates are extremely competitive, and generally lower than conventional mortgage rates.
To make sure that its programs serve low and moderate-income people, FHA sets limits on the dollar value of the mortgage loan. It is always changing, and does vary depending on which county the property is located, so be sure to ask your loan officer about the area you wish to buy.
In the Minneapolis St Paul MN area for example, the current single family loan limit is $322,600.
Mortgage insurance is required under all programs where the borrower does not put at least 20% down payment. Under the new FHA rules (started June 3, 2013) mortgage insurance is required on all FHA loans. If your FHA loans starts out with less than 10% down or equity, your mortgage insurance is required for the life of the loan. If your loans starts at more than 10% down or equity, you will have mortgage insurance for at least the first 11-years of the loan. Conventional loans are able to eliminate mortgage insurance when you reach 80% loan-to-value (20% equity).
FHA also has a super cool loan to help you buy and fix up homes needing a little tender loving care. You can buy the home, and get the money to fix it all in one loan. Visit our FHA 203k web page for more information, or just apply here to get started.
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Mortgages Unlimited, Inc - St Paul Office
33 Wentworth Ave E, Suite 290
Saint Paul, MN 55118
Office (651) 552-3681
Fax (651) 994-6425
Mortgages Unlimited, Inc. Nationwide Mortgage Licensing System and Registry (NMLS) # 225504 Saint Paul Branch - NMLS # 387944. Joe Metzler, Licensed Mortgage Loan Originator NMLS # 274132. Minnesota Lic# MN-MLO-274132. Wisconsin Lic # 11418. South Dakota Lic # MLO.03095
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