What you should know about FHA credits
It’s a new year and a new opportunity for many people to become homeowners. There are several mortgage products designed for first time buyers; the FHA loan is particularly helpful. Here’s what you need to know about them and what changes have been made for this year.
What is an FHA loan?
That means a Federal Housing Administration loan, which means it’s backed by the US government, not provided by a government agency. You deal directly with the mortgage lender or broker to get the loan, but FHA usually buys from the lender after the loan is issued or guarantees that the lender will not lose money. They require a lower down payment and credit score than most traditional loans, making them a favorite among first-time homebuyers.
What are the terms?
The terms of these credits can be 30 or 15 years. The interest rate is fixed for the entire term of the loan. As long as borrowers have a minimum credit score of 580, they only need to make a 3.5% down payment. Closing costs range from 3-5% of the total loan, of which up to 6% may be paid by the seller, builder or lender.
FHA borrowers must pay a minimum of 11 years of mortgage insurance premiums, not just 20% principal like traditional loans. An initial premium of 1.75% of the loan amount must be paid at the start of the loan, but it can be financed through a balloon mortgage.
Then each year the borrower will take 0.45% to 1.05% of the annual premium, divided by 12 and paid monthly with the mortgage. If a borrower is tired of paying mortgage insurance, after a few years of timely mortgage payments and capital gains, he or she may be able to refinance with a traditional loan. A minimum of 500 points and a 10% deposit, or a score of 580 or higher and a 3.5% deposit.
These credits also require two years of proof of employment and income and must plan to use the property as a primary residence. If they go bankrupt, they have to wait one to two years to file a claim and three years after foreclosure. Lenders will also require that borrowers’ debt (mortgage charges plus all other debt) not exceed 43% of their gross income.
What are the loan limits for 2022?
Each year, the Federal Housing Finance Agency sets loan limits for all mortgages. These limits are based on the average cost of housing in the country and certain regions. For most of the US, FHA borrowers can borrow up to $420,680 in 2022, up from the $356,362 limit in 2021. For the most expensive parts of the country, such as Hawaii, California, and Washington, DC, the limit loan is even higher: $970,800 this year, up from $822,375 last year. With higher loan limits and currently lower mortgage rates, an FHA loan could be the perfect tool to help you get a home in 2022! Contact us today for more information.
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