FHA Loans Explained
The FHA loan is a common loan type that is given out by the lenders qualified under the federal law, and insured by the Federal Housing Administration, a branch of the U.S. Department of Housing and Urban Development, HUD. At Colorado Mortgage Pros, we are qualified lenders under the Colorado FHA lenders. Our Colorado FHA loans are an ideal option, specifically for first-time borrowers and homeowners due to the following reasons:
- The loan limits are specific to the county
- There are lower credit score requirements
- They are normally easier to qualify compared to other conventional loans
- There are lower down payment requirements of 3.5% unlike the 5% for the conventional loans
FHA is a common abbreviation for the Federal Housing Administration/ FHA offers mortgage insurance on loans that are originated by approved Colorado lenders. FHA normally ensures the single family, 1-4 family homes, as well as the multifamily homes that include the manufactured homes. In general, the FHA is the largest mortgage insurer in the world. Since its foundation in 1934, the FHA has been insuring over 34 million properties. To close a loan, the FHA requires very little in terms of cash investment in contrast to the conventional loans that require a strict down payment guideline. With the FHA, you will only be needed 3.5% of the selling price. Another advantage with the FHA is that there is more flexibility when calculating the payment and household ratios. Besides, borrowers could have debt-to-income ratios as high as 55% and still qualify for the loan. In some cases, the ratio can be 57% but with compensating factors.
The FHA and First Time Home Buyers
The first time home buyers normally make use of the FHA 203(b) loan to receive financing. However, anyone can qualify for the FHA loan and is therefore not limited to the first time buyers only. The FHA loan is the most widely used residential loan plan in America. The Colorado FHA loans are easy to qualify for compared to the traditional mortgage programs. The debt-to-income ratios are more lenient, and there is also the flexibility of the cash reserves. The public has several myths and misconceptions about the FHA loans, one being that the loan is only limited to the first time home buyers. This is not factual as anyone can qualify for the FHA insured loan so long they meet the income, asset, and credit requirements set by the HUD. In fact, borrowers can get a second FHA loan and is not limited to one-time use like in other loans. It is imperative to note that the cost of the mortgage insurance is normally passed along to the borrower or homeowner and usually is inclusive in the monthly payment. All Colorado FHA lenders must adhere to this strict rule.
The life of the loan itself is the Mortgage Insurance Premium, MIP on FHA levied on the FHA loan. This cannot be annulled down the road. The only way you can cancel a Mortgage Insurance Premium for an FHA loan is by refinancing and converting it from FHA to conventional and having a loan-to-value, LVT under 80%. As mentioned above, there are some mortgage loan limits that are specific to a county that lenders must adhere to. The FHA loans allow for both refinance and purchase transactions. In addition, there are FHA streamline refinance that are available to borrowers already with an active FHA loan and wish to refinance to another FHA insured mortgage so as to lower their current rate. For more information about FHA loans, their characteristics, advantages, requirements, and how they can assist you, contact Colorado Mortgage Pros, and our specialists will help you.