5. Mortgage insurance is required.
Mortgage insurance premiums are required on all FHA loans. There are two types of premiums, both of which need to be paid for by the borrower (just at different times within the life of the loan).
- Upfront Premium
- 75% of the loan amount
- Paid when the borrower signs off on the loan
- Can be financed into/as part of the loan amount
- Annual Premium
- Paid monthly
- Varies based on the length of loan, loan amount, and the initial loan-to-value ratio
Keep in mind – Unlike conventional mortgage insurance, FHA mortgage insurance cannot be canceled if you made a down payment of less than 10%.
6. You can borrow cash for repairs via an FHA loan!
The 203K loan is the FHA’s special loan product for borrowers buying a home in need of repairs before deemed “livable”. If the location is great and the property has potential, this could be an option to make it happen! Because the Federal Housing Authority is involved, lenders are willing to move forward with a property they otherwise wouldn’t touch.
The loan amount is not based on the current appraised value of the home, but on the projected value after the repairs are completed.
*Talk to your mortgage professional about the requirements and availability for this loan product in your area
7. There is no “set” loan limit,.
The maximum FHA loan size depends on where the home is. The limit is lower in the least expensive housing markets and higher in the most expensive housing markets.
You can look up loan limits by county on the U.S. Department of Housing and Urban Development website – https://entp.hud.gov/idapp/html/hicostlook.cfm
8. There are property limitations.
While most of our facts have been positives towards an FHA loan, there are some drawbacks and situations where FHA loans aren’t right for buyers. Getting an FHA loan approved requires a property that meets certain standards. For example, basic health and safety requirements must be met. If you’re looking for a fixer-upper, a major bargain, or certain foreclosures, an FHA loan isn’t going to work. FHA loans require a more thorough inspection by an FHA approved appraiser.
*Ask your mortgage professional for a list of repairs that must be done before your appraisal.