By Rosemary Liuzzo Mohamed
Clients have recently inquired about FHA Loans. FHA loans are mortgages insured by the Federal Housing Administration of our government, and may be used to finance a primary residence. Homebuyers – especially first time – may explore this type of mortgage when they do not qualify for a conventional mortgage. FHA loans can be helpful in two ways: They are available to individuals who may have struggled with their credit and are currently rebuilding, and they require less of a down payment.
However, there is a downside to FHA loans. Since borrowers will put down less than 20% and tend to have lower credit scores, FHA loans require mortgage insurance premiums in addition to the mortgage payment. These payments are required upfront at closing and will continue annually. The upfront payment is generally rolled into the loan at closing and is 1.75% of the loan amount. The annual payments are paid monthly on top of the mortgage payment and can range from 0.45% to 1.05%, depending on the loan term, loan amount, and other factors. If you finance 90% or less, the annual payments will end after eleven years, as long as all monthly payments are made on time. If over 90% is financed, the additional annual payments will continue throughout the entire life of the loan. Despite the high costs, many first-time homebuyers do choose to explore this option.
Although FHA loans are government backed, borrowers may obtain these loans from major lenders offering conventional mortgages. Borrowers are offered fixed interest rates with both 15 and 30 year terms. To qualify, there are several factors a lender will take into consideration. A mortgage banker can walk you through the requirements to determine if this type of loan is right for you. The mortgage finance department at Adam Leitman Bailey, P.C. is always here to help as well.
Rosemary Liuzzo Mohamed is a Partner at Adam Leitman Bailey, P.C. and the Chair of the Mortgage Finance Group.