In the wake of the housing bubble’s collapse, FHA loans San Diego have taken on renewed importance for today’s mortgage borrowers. An FHA loan is a mortgage insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development. Borrowers contain FHA loans pay for mortgage insurance, which ultimately protects the lender from a debt if the borrower decides to not follow through on the loan. Due to that insurance, what lenders can and do, is offer FHA loans at an inviting interest rate and with less strict and more versatile qualification requirements. Further on, seven facts are listed that all buyers should know about FHA loans.

1) Less-than-perfect credit is OK

As of September 2010, credit scores for FHA loans San Diego depend on the type of loan the borrower needs. According to the FHA, scores should be 580 or better.
• Those having credit scores between 500 and 579 are restricted to borrowing 90 percent loan-to-value.
• A credit score of 500 or less is not suitable and therefore you are not qualified.
• The FHA will make accommodations under certain circumstances for applicants who contain “nontraditional credit history or insufficient credit” only if they meet the requirements.

2) Minimum down payment is 3.5 percent

Required by the FHA, a down payment of just 3.5 percent is needed of the purchase price of the home. This is a fraction of the what is typically required on majority of other loans and like the senior director, compliance and fair lending at Treliant Risk Advisors and formerly a vice president of government programs for another lender, Dennis Geist calls it a “huge attraction.” The down payment can be used from the borrowers personal savings. Other allowed sources of cash may include a gift from a family member or a grant from a state or from a local government down payment assistance program.

3) Closing costs may be covered

FHA loans San Diego allow sellers, builders and lenders to pay some of the borrower’s closing costs, such as an appraisal, credit report or title expenses. A builder might offer to pay closing costs as an inducement for the borrower to buy a new home. If willing to pay closing costs, lenders typically charge at a higher interest rate on the loan. Borrowers are able to use the good faith estimate of closing costs, known as the GFE, to compare interest rates and closing costs on separate loans and figure out which option is best.

4) Lender must be FHA-approved

The FHA is not a lender, but rather an insurance fund. Therefore borrowers need to obtain their loan through an FHA-approved lender (as opposed to directly from the FHA). Unfortunately, not all FHA-approved lenders offer the same interest rate and costs, even if on the same FHA loan. Costs, services and underwriting standards will vary among lenders or mortgage brokers, so it’s important for borrowers to shop around.

5) Mortgage insurance is a must

There are two mortgage insurance premiums are required on all FHA loans San Diego, CA. The upfront premium is 1.75 percent of the loan amount and is paid when the borrower obtains the loan. It also can be financed as part of the loan amount. The second is the annual premium, which varies based on several factors. The length of the loan, the amount borrowed and the initial loan-to-value ratio (LTV). The current annual premiums for loans less than $625,500 are:
• 15-year loan, LTV more than 90 percent: 0.70 percent
• 15-year loan, LTV 90 percent or less: 0.45 percent
• 30-year loan, LTV more than 95 percent: 1.35 percent
• 30-year loan, LTV 95 percent or less: 1.3 percent
Geist believes, “The perception is that that sounds expensive.” However, Geist adds, “borrowers need to compare the FHA-insured loan to a loan that’s not FHA-insured (and consequently requires a much larger down payment). In many cases, the FHA loan is still the best choice.”

6) Extra cash available for repair

For borrowers that need extra cash in order to make repairs to their homes, there is a special FHA loan product. The chief benefit of this type of loan, which is called a 203(k), is that the loan amount is based not on the current appraised value of the home, but on the expected value after the repairs are completed. “A so-called “streamlined” 203(k) allows the borrower to finance up to $35,000 in nonstructural repairs, such as painting and replacing cabinets or fixtures,” Geist says.

7) Financial hardship relief allowed

FHA insurance is not intended to be a quicker way out for borrowers who feel unhappy about their mortgage payments. However, loan servicers can offer some relief to borrowers who have an FHA-insured loan, who have suffered a serious financial hardship and are struggling to make their payments. That relief might be a temporary period of forbearance. A loan modification that would lower the interest rate or extend the payback period, or a deferral of part of the loan balance at no interest.

Call San Diego Mortgage & Realty for more information aobut FHA loans San Diego, CA: (858) 487-2208.