Although it has been generally considered a loan for the first time homebuyer, the FHA home loan is capableof so much more. Of course, you can buy your first home with an FHA home loan. However, you can also refinance with an FHA home loan. The strength of the FHA home loan lies in it’s lenience regarding credit score.
With a conventional loan, you would normally have to accept penalties to your interest rate for credit score and loan-to-value ratio. The FHA home loan is much more forgiving. The rate for a borrower with a 630 FICO, borrowing 95% of the property’s value on an FHA home loan, could be the same as a borrower applying for a conventional loan for 75% of the property’s value with a 720 FICO score. That represents a tremendous advantage to many borrowers who want to realize the American Dream, but who also have a “less than perfect” history.
For that reason, I have seen FHA home loans dominate the Portland, OR and Vancouver, WA markets over other mortgage options, such as conventional home loans.
Because the FHA home loan generally deals with loan-to-value ratios that exceed 80%, mortgage insurance comes into play. The beauty of the FHA home loan is that you are not penalized for your credit score or loan-to-value in this regard. As we state in the video, you are basically subscribing to a group policy as far as the mortgage insurance goes. The mortgage insurance premium is split between an upfront fee, which is financed into the loan, and a monthly premium. This helps to keep your payment lower. And as we state in the video, the monthly premium generally goes away after 5 years.
If you have any questions about the FHA home loan, or the mortgage process in general, please feel free to contact us. We are always happy to help, and we encourage you to subscribe to updates via RSS or email. Thanks!
