UTAH MORTGAGE PRODUCT

FHA Loan Purchase

An FHA loan makes buying a home with little money saved or a less-than perfect credit score a reality.

Overview: FHA Home Loans

Achievable Down Payment Options

An FHA loan is a home loan the Federal Housing Administration insures. FHA loans require a smaller a down payment and lower closing costs and allow relaxed lending standards to help homeowners who don’t qualify for a conventional loan.

FHA loans allow a down payment of as little as 3.5% on a mortgage. This can make it possible for lower- and middle-income borrowers to buy a house when they don’t qualify for a conventional loan — which has stricter requirements, including a higher credit score and bigger down payment.

The main benefits of an FHA loan are:

Lower credit score and down payment requirements. Unlike a conventional home loan, FHA credit score requirements are much lower. According to HUD you can technically qualify for an FHA loan with credit scores of at least 580.
FHA loans can make qualifying easier if you already have existing debt. For conventional loans, you are normally limited to having monthly housing and other debts equaling no more than 36% of your income. With an FHA loan, this number gets raised to 41%.
FHA loans are assumable. When it comes time to sell, buyers can take over the sellers' existing FHA loan instead of taking out new one at whatever the current mortgage rate at that time. This is especially beneficial in a rising-rate. environment

ARM VS. fixed: Which should I choose?

A fixed-rate mortgage has the same interest rate through entirety of the loan. Your monthly payment of P&I (principal and interest) won’t change. A fixed-rate mortgage is one of the most popular types of financing because it offers stability and predictability for most peoples budget.

An adjustable-rate mortgage, commonly referred to as an 'ARM', is a home loan with an interest rate that can change periodically. This means that the monthly payments can go up or down. In general, the initial interest rate is lower than that of a fixed-rate mortgage. After the fixed-rate period ends, the interest rate on an ARM loan moves based on the index it’s tied to.

When deciding if a fixed or ARM rate is right for you, there are some questions that you need to ask yourself:
1. How long do I plan on staying in the home?
If you’re only going to be living in the house for a few years, it would make sense to take the lower-rate ARM. Your payment and rate will be lower, and you can build savings for a bigger home later on. Also, you’ll never be exposed to huge rate adjustments of an ARM because you’ll be moving before the adjustable rate period begins.
2. How frequently does the ARM adjust, and when is the adjustment made?
After the initial, fixed period, most ARMs will adjust every year on the anniversary of the loan. The new rate is actually determined by the index value around 45 days before the anniversary. But some adjust as frequently as every month. If that’s too much volatility for you, it might be better to go with a fixed-rate mortgage.
3. What’s the interest rate environment like?
When rates are relatively high, ARMs can make sense because their generally lower initial rates will allow you to still reap the benefits of home ownership. When rates are lower, you have a decent chance of getting lower payments even if you don’t refinance. When rates are relatively low, however, fixed-rate mortgages make more sense.
4. Can you still afford your monthly payment if interest rates rise?
On a $150,000 sing year ARM mortgage with 2/6 caps, your 5.75 percent ARM could rise to 11.75 percent, with the monthly payment rising up as well. Generally, when fixed mortgage rates are low, fixed mortgages will tend to be a better deal than an ARM, even if you plan to stay in your home for only a few years.

How do I qualify for a FHA Home Loan?

FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.

The major eligibility requirements include:

Credit Score. The minimum credit score requirement is typically at least 580 depending on the the wholesaler that is used. However, there are options for those with credit scores between 500 and 579.

You cannot have either a Chapter 7, or Chapter 13 bankruptcy within the last 2 years.

A down payment of at least 3.5% is usually needed for an FHA Loan, however, there are down payment assistance products and grants that may be available to help with the burden of down payment.

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