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FHA LOANS vs. Conventional Financing

Although there are similarities between FHA and Conventional mortgage loans there are also some big differences. While FHA mortgage rates are similar, credit guidelines are different. FHA allows for borrowers with less than perfect credit to receive the same interest rate as a borrower with unblemished credit. The lowest down payment conventional loans are much harder to qualify for.

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FHA was created by the Federal Government to provide affordable housing financing for qualified borrowers. FHA doesn't actually lend, they just insure the loan, eliminating the lender's risk. The borrower pays a small upfront insurance premium, called MIP, which is added to the loan amount. The borrower also pays monthly mortgage insurance. While everyone hates mortgage insurance, these funds go into a default pool to cover any losses, making the program available. FHA borrowers have to pay into this fund.

FHA Home Loan Down payment requirements can be low. In contrast to conventional mortgage products, which frequently require a minimum down payments of 5-10 percent or more of the purchase price of the home. Currently FHA REQUIRES only a 3.5% down payment. This money can be your own money, a gift from a blood relative, or a gift or grant from a true community, state, or city program.

On FHA loans, closing costs can be financed, up to 6% of the purchase price. With most conventional loans, the maximum is just 3%. Typically borrower must pay, at the time of purchase, closing costs (the many fees and charges associated with buying a home). This program allows the borrower to finance many of these charges, thus reducing the up-front cost of buying a home.

Just like all loans, FHA home loans require borrowers to provide proof of sufficient income to pay the mortgage. While FHA guidelines are generally more relaxed, FHA is NOT, and does not do sub-prime loans. FHA interest rates are extremely competitive with conventional rates, and many times actually lower.

Limits on the loan amount. To make sure that its programs serve low and moderate-income people, FHA sets limits on the dollar value of the mortgage loan. It is always changing, and does vary depending on which county the property is located, so be sure to ask your loan officer about the area you wish to buy.

FHA Mortgage Insurance. Mortgage insurance is required under all programs where the borrower does not put at least 20% down payment. Under the new FHA rules (started June 3, 2013) mortgage insurance is required on all FHA loans. If your FHA loans starts out with less than 10% down or equity, your mortgage insurance is required for the life of the loan. If your loans starts at more than 10% down or equity, you will have mortgage insurance for at least the first 11-years of the loan. Conventional loans are able to eliminate mortgage insurance when you reach 80% loan-to-value (20% equity).

Non-conforming Bad Credit, Sub-prime, Alt-A Loans Gone
Lenders, and the crazy lender days from 2000 - 2006 are long gone. Bad credit, sub-prime, stated income, no doc, Alt-A, and everything else crazy is no longer available. FHA is your best option if you are a weak credit risk, but it is NOT a bad credit loan. You have to qualify, it has to make sense, and you have to have a little skin in the game (down payment).

FHA 203k Buy and Fix it all in One Loan
FHA also has a super cool loan to help you buy and fix up homes needing a little tender loving care. You can buy the home, and get the money to fix it all in one loan. Visit our FHA 203k web page for more information, or just apply here to get started.

Getting a Home is easy.  Start by

Cambria Mortgage - St Paul Officee
33 Wentworth Ave E, Suite 290
Saint Paul, MN 55118
Office (651) 552-3681    Fax (651) 994-6425
E-Mail: joe@JoeMetzler.com


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33 Wentworth Ave E - St Paul, MN 55118 - NMLS 274132
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Joe Metzler, Licensed Mortgage Loan Originator NMLS #  274132. Minnesota Lic/Reg #: MN-MLO-274132. Wisconsin Lic/Reg #: 11418