This continues a series on basic types of loan financing. We will address conventional loans, FHA loans, FHA/THDA loans, and VA loans, and their ability to meet your clients' unique financial needs.
FHA loans are loans which meet Federal Housing Administration regulations and whose borrowers meet eligibility criteria. FHA loans are guaranteed to the lender by the Federal government. They are typically at lower interest rates than conventional loans and thus are far more attractive to borrowers. The borrower is charged a mortgage insurance premium which is paid out of closing in one lump sum to the FHA. This amount may be added to the base amount of the loan and be financed as part of the transaction, or may be paid in cash. FHA loans are basically allowed up to a 95% to 97% loan to value ratio. The loan amount takes into consideration the FHA’s estimate of closing costs on top of the sales price or appraised value of the property, whichever is less. The up-front mortgage insurance premium is figured as being 1.5% of the base loan amount. This mortgage insurance premium is financed into the total amount of the loan. The monthly premium is one-half percent of the base loan amount divided by 12. One exception to the “lump sum” FHA mortgage insurance premium is where a condominium is being financed. On condominium loans, the FHA up-front mortgage insurance premium is waived, and only the monthly premium is collected.