The United States Federal Housing Administration (FHA) insures loans from FHA-approved lenders. An FHA-backed loan is one option for anyone with low-to-moderate income because it requires and lower minimum down payment and a lower credit score than a conventional loan. However, lenders place certain restrictions and limitations on these loans they do not place on conventional loans.
Additionally, an FHA loan requires the borrower to pay two mortgage insurance premiums. The first, called an Upfront Mortgage Insurance Premium (UFMIP), is equal to 1.75% of the loan amount and is due at the time of closing. It can be paid in full or rolled into the loan financing.
The second type of required mortgage insurance is an Annual MIP paid monthly. This can be anywhere from 0.45% to 1.05% of the loan amount. The Annual MIP rate is based on the loan amount, the loan term, and the loan-to-value ratio (LTV) of the property.
FHA Loan Eligibility
With an FHA-backed loan there are loan limits, income limits, and credit score considerations. So, be sure to talk to your Murfreesboro, TN lender to see what works best for you. As of 2020, here are a few of the FHA eligibility requirements:
– State of the home – the property must be safe, sound, and secure
-Borrower’s credit score – a credit score between 500 and 579 requires a 10% down payment, while a credit score of 580 or higher lowers that rate to 3.5%
– Income – the borrower must be able to prove employment and steady income for the last 24 months, and their debt-to-income ratio must be less than 43%
FHA Loan Benefits
FHA-backed loans are easier to qualify for if you are lower income or have a credit score lower than 620. They require lower down payments and are more easily attainable with the help from an experienced lender who knows the ends and outs of the system.