If you are looking for a way to finance your home, an FHA loan could be good for you. Learn from this guide everything about this loan and whether you should consider it.
What Is an FHA Loan?
FHA loans are administered by the Federal Housing and Administration agency. However, note that these loans aren’t given by the FHA but by FHA lenders. As such, those taking FHA loans Arizona must pay mortgage insurance to protect a lender in case a borrower defaults. This insurance makes FHA mortgage rates Arizona affordable for many people. These loans make home financing possible for more Americans and have several benefits such as they don’t have an income limit or prepayment penalties that make them suitable for first-time home buyers.
Who Gets an FHA Loan?
Since FHA loans have mostly been used by first-time home buyers, many individuals assume that only first-time homebuyers can obtain them. However, even if you’ve bought a home before, you can still qualify for FHA loans. But note that you can’t use these loans to finance vacation homes or rental properties. They are designed specifically for those buying a home as their principal residence. In fact, one of the requirements is that borrowers move into the home within 60 days and occupy it for not less than one year.
Note that FHA loans are for your primary residence only and will not finance more than one property as a person’s principal residence. That means that you can’t buy another home with this loan if you already have an FHA home unless you sell it first. However, there are some exceptions, including;
- When one is relocating more than 100 miles for work-related reasons.
- When the family increases and outgrows your current home. But you must have less or equal to 75% of the loan balance of your existing home.
- If you co-own a property and you are planning to vacate it permanently.
- A non-occupying borrower.
How Do You Qualify for FHA Loans?
Generally, FHA favors people with a good credit history. However, if you have some past blemishes, you may still qualify for it. Your credit score should be around 580 or higher. This is much lower than most programs which is why it’s such a great option for so many Americans.
FHA loans are also more forgiving when it comes to having past credit events. If you’ve experienced a bankruptcy or a foreclosure FHA will allow you to purchase a home sooner than other programs. If you have past credit collections or charge offs FHA loans can be a great option.
Also, you must prove that you can make monthly repayments and that you have cash for the down payment and closing costs. Additionally, they will check for the value and condition of the house you are planning to purchase.
What Is the Minimum Down Payment for FHA Loans in Arizona?
Borrowers are required to pay a down payment of 3.5% of the total loan. This amount is quite small and affordable for many buyers as compared to other loans. One can pay the down payment with their savings or any other form of income such as cash gifts from relatives, government grants, down payment assistance programs, etc.
FHA Loans Closing Costs in Arizona
Well, these are not too different from other loan types. However, individuals must pay FHA mortgage insurance premiums to protect lenders against losses. FHA collects a one-time premium when one buys a home and an annual premium from their monthly installments. The great news is this one time premium is rolled into your loan and not out of pocket when you purchase.
Let’s look at an example of the FHA loans scenario. Someone buys a house with a down payment of 3.5%, a fixed interest rate, which is usually lower than conventional programs, and a 30-year payment term. Their upfront mortgage premium will be 1.75% of their loan base (again rolled into their loan), and an annual 0.85% premium is added from their monthly installments. Another highlight is FHA loans allow for a higher debt to income percentage than other programs which helps more Americans qualify for mortgage loans.