FHA Loan Requirements
The Federal Housing Administration, or FHA, doesn't actually make loans. Instead, the FHA insures mortgage loans made by community lenders. This means that if you default on your loan, the FHA will reimburse the bank for the loss. If you are considering buying a home, it's a good idea to be familiar with the FHA loan requirements.
Other People Are Reading
-
Loan Amounts
-
The amount the FHA will insure for your loan depends on the type of property you want to buy. The maximum insurable loan amount changes each year, and may be set higher for certain counties that the FHA designates as "high cost" areas. As of November 2009, for example, for a single family home, the maximum insurable loan was $200,160 in most areas; a duplex, three-family, or four-family home will carry higher loan amounts.
Down Payment
-
As of March 2011, you must have at least 3.5 percent of the purchase price in your own cash to put down on the sale for an FHA loan. Some of that 3.5 percent requirement can be a gift or a loan from a relative, so don't let the down payment requirement stop you from exploring your purchase options.
-
Loan-to-Value
-
Loan-to-value is the amount of a loan in relation to the price of the home; for example, if your home is priced at $100,000 and you make a down payment of $10,000, the loan-to-value is 90 percent. For an FHA loan, the loan-to-value is based on the lesser of the sales price or appraised value.
Mortgage Insurance
-
For an FHA loan, you'll have to purchase mortgage insurance, which would help repay the cost of the loan to the bank if you were unable to continue paying. You'll have to pay an "up-front" premium that is paid upon closing of about 1.5 percent of the entire mortgage, and you will also have an annual premium, paid monthly, of 0.5 percent of the remaining mortgage balance (divided by 12).
Interest Rates
-
FHA loans carry competitive interest rates, which means you can negotiate with your bank to determine the interest rate. Of course, the current rate market has a big impact on the rate you'll receive.
Loan Terms
-
Your FHA loan can have any repayment term up to 30 years. Typically, mortgage loans are paid off in 30 years.
-
References
Resources
- Photo Credit Jupiterimages/Pixland/Getty Images
