What Is An FHA Loan?
Originating in 1934, FHA loans are mortgage loans that
are backed by the Federal Housing Administration (FHA).
That means that the banks or other lending institutions
who supply these loans for folks who qualify are
protected against loss. Because the lenders are buffeted
against risk, they're more likely to lend to individuals
they may not under normal loan requirements.
That said, the cost for this added protection does fall on the mortgagee, through both an upfront and long term premium payment. Because the buyer assumes responsibility for the risks the bank faces, FHA-backed loans make home loans available to more individuals. Conditions that might normally prevent loan access are no longer a threat, including:
Lower credit scores
Lack of access to ample funds for downpayment
History of bankruptcy/financial issuesThere are certain criteria that any borrower will need to meet in order to qualify for an FHA loan. Reach out to your friendly neighborhood purchase expert for help navigating the application process.
What Is Mortgage Insurance?
Mortgage insurance protects a lender against losses if
something goes awry and the borrower ends up defaulting
on their loan. Essentially it lowers the risk to
lenders, allowing individuals with less-than-ideal
circumstances to apply and be accepted. FHA loan
recipients are required to carry mortgage insurance and
in turn, the FHA will pay a claim to the lender for the
unpaid principal balance in the case of default. Outside
of FHA and USDA loans, there are other circumstances
that could require folks to carry mortgage insurance.
The mortgage insurance premium (MIP) may be included in closing costs, wrapped into monthly loan payments, or it could be a combination of the two. The upfront MIP often amounts to 1.75% of the base loan amount, while annual MIP payments have been approximately 0.8% - 0.85% of the base loan amount. But things have changed recently, making FHA loans more affordable.
Lower Mortgage Insurance Premium and Cost Savings
This year, the FHA announced that they would be lowering
the cost of the annual (not upfront) MIP; the change
went into effect March 20, 2023. Now, instead of being
the traditional 0.8% - 0.85%, FHA loan applicants will
be looking at a 30 basis points (BPS) reduction, which
is a reduction of 0.3% of the total balance. That will
result in an MIP of 0.5% - 0.55%. Since this is paid
annually for anywhere from 11 years to the life of a
loan, this reduction can mean a savings of hundreds of
dollars per year, and tens of thousands in total.
Specific savings will depend on an array of factors - loan-to-value ratio (LTV), loan amount, and length of mortgage term - but let's suffice to say that this change is something to get excited about! It's also another reason to take advantage of an FHA loan when looking for a new single-family home, condominium, or manufactured home. For folks who already have an FHA loan and want to get in on the savings, refinancing can allow existing borrowers to potentially lower their costs.
The U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) have made this pivotal move in order to help relieve some of the increasing financial stress that home buyers have been facing in recent years.
Work With Purchase Experts Who Know FHA Loans
Here at Liberty Home Mortgage we know what a struggle it
can be to get a mortgage when you have less-than-ideal
circumstances. There are tools and products available,
but it's easier to take advantage of these options when
you have a trusted professional on your side. We've been
through this process countless times with our customers
and they're always happy to find that we stand behind
our promises and we have their backs.
Liberty Home Mortgage purchase experts are here to help get you set up to buy your next home. You can lean on us for wise guidance, educational resources , and a wide array of available mortgage products . Have more questions? Contact our team today to learn how together, we can make your dream of homeownership a reality. From a new mortgage to refinancing, we're ready to help you get on track for a brighter future.