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An Introduction to FHA Loans

If you fall into any of these categories then an FHA loan might be for you:

  • First time home buyer
  • Don't have money to put down on a house
  • You do not have perfect credit
  • You want to keep monthly payments as low as possible

There are many positive benefits to taking out an FHA loan verses conventional loans. First, if you are buying your first home, or even a home that may need fixing up, then this loan is the right choice. The down payment may be as low as 3% of the purchase price and closing costs, and remodel or repair costs can all be included in one loan.

Second, if you happen to have less than perfect credit then it is easier for you to qualify for FHA loans. There are easier terms to qualify for this type of loan, making it good for those who have struggled in the past. In general, fha loan qualifications are less stringent than other mortgage programs.

Third, a part of what makes the FHA loan appealing to first time home buyers, or those who have struggled with credit, is the low cost and smaller down payments. FHA-insured loans have competitive interest rates due to federal government insurance.

Something important to consider is the type of loan you are going to pick, and in this case why FHA insured loan is the right choice. The kinds of loans that are offered by FHA are:

  • Fixed-rate loans- Most FHA-insured loans are fixed rate loans. This allows for the interest rate to stay the same during the loan period. The huge positive in this type of loan is in knowing that the monthly payment will be the same.
  • Adjustable rate loans- This type of loan can work for those who start off buying a home while not the most financially secure. The initial interest rate and monthly payments are low, but then they change over the life of the loan. The 1-year-Constant Maturity Treasury Index is used in this case to calculate the changes in interest rates. The most the interest rate will increase or decrease in any one year is 1 or 2 points. The maximum change over the life time of the loan is 5 to 6 percentage points.
  • Purchase/rehabilitation loans- This is the loan for those who are looking to buy a home that needs fixing up. This FHA loan for repairing single-family properties is called the SF Rehabilitation Loan program. The loan combines the mortgage and the cost of repairs, while the mortgage is based on projected value of the property after the fix up is finished. This could have the huge advantage to those with fix up home because it allows there to be only one mortgage payment.

These loans allow it to be tailored to your specific needs and also are more flexible than other more costly loans that have higher restrictions and tough qualifications.

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Century 21 Lois Lauer Realty
33699 Yucaipa Blvd. • Yucaipa, CA 92399
Office: 909.227.2191 • Toll Free: 877.283.7624
Email: skrug@loislauer.com
DRE License 00895388