There are many ways to buy a home. Some people pay cash, but most people who make a home purchase can’t afford to do that. Instead, they need to get a mortgage. That’s where things can get complicated, because they might not even be sure what options are open to them. There are conventional, VA, and FHA choices, along with some more unique options that won’t work for too many buyers but that will work for some. If you decide to get a mortgage it’s important to know the conventional and FHA loan rates, which can vary from one day to the next. Current FHA loan rates as of February 2016 are around 3.5 to 3.75 percent. Rates for FHA loans have been hovering between 3.0 and 4.0 percent for some time, and that trend is expected to continue. Your interest rate will really affect how much your loan costs and what your payments are, so it’s well worth paying close attention to. By asking the right questions, you can make an informed decision about which loan will be right for you, and FHA is a popular choice for a lot of buyers.
What is an FHA loan?
As more people want to buy houses again, FHA loans are becoming very popular with first time homebuyers. These loans are through the government, and backed by the Federal Housing Administration. An FHA loan generally requires a much smaller down payment than a conventional loan, and your credit score doesn’t have to be as good as most banks require for conventional options. These loans can be used by anyone, but they are most common for people who are buying their first home, for lower-income buyers, and for those who have had some credit problems in the past. Not everyone can qualify for an FHA loan, but their more lenient requirements mean more people have a chance to get into home ownership.
Does FHA have different types of loans?
The FHA provides more than one type of loan, so it’s important to decide exactly how the loan will be used. Their standard FHA loan is used for buying a house. You have to live in that house, and it can’t be for a vacation property, a second home, or for investment. There is also a 203(k) loan offered by the FHA, which is commonly called a rehab loan. This is used when you want to buy a house that needs a lot of work. You can buy the house and roll the cost of the repairs into the loan. There are very strict requirements for this loan, because the FHA wants to be sure that the extra money you borrow, over and above the purchase price of the home, really does get used for the needed repairs. As long as it does get used properly, this loan can be a great way to buy a home and get it fixed up at a price that’s still affordable.
What credit score is needed?
The minimum credit score for the FHA program is 580, but that doesn’t mean people with that score or a higher one will automatically be approved. Credit score is not the only issue that FHA borrowers have to deal with. There are other requirements, such as how much money they make, if they have a stable, verifiable income, and how much debt they have. If they have a lot of debt and not enough income they can be turned down for an FHA loan, even if they have a credit score that is well above the minimum requirement. There are also additional requirements placed on the borrower by the bank or other lending institution handling the FHA loan, and these requirements are called overlays.
What are lender overlays?
A lender overlay is a requirement made by the lender, that overlays the requirements of the FHA loan. For example, if the FHA requires a minimum credit score of 580, but the minimum credit score for the lender is 620, the borrower will need a credit score of 620 or above to qualify through that bank. That can be very frustrating to borrowers with low credit scores, because they think they can get an FHA loan and then they realize that no lenders will offer them a loan because of the overlays they add to the FHA program. It can take time to raise a credit score, but that may be what is needed in order to obtain an FHA loan for a borrower in that position.
Is an FHA loan the right choice?
The rate for an FHA loan can vary based on your credit score and other factors. If you want to check into an FHA loan and find out if you would qualify, there are many banks and lending institutions that can help you. However, an FHA loan may not be the best choice for your situation. They can have down payments as low as 3.5%, but by putting less than 20% down you’ll need to pay PMI (Private Mortgage Insurance) on top of your regular insurance. That can be much more expensive on an FHA loan than on a conventional loan, meaning that the payment for your home will actually be higher.
What are the recent trends in FHA lending?
Many first time homebuyers are saving up and getting conventional loans, where they put more money down and avoid some of the high PMI and other fees that come with FHA loans. However, FHA loans are still very popular with buyers who have small down payments. Those with credit problems and buyers with high DTI (debt to income) ratios also tend to gravitate toward FHA loans. All of these current trends appear to be what the future will also hold for FHA loans, since they are more appealing to specific groups of buyers for which these loans were generally designed. The trend toward FHA loans for many types of borrowers will continue to mean that the FHA loan remains popular and available through most banks and other lending institutions.
2 Point Highlight
The rate for an FHA loan can vary based on your credit score and other factors.
As more people want to buy houses again, FHA loans are becoming very popular with first time homebuyers.
