The FHA loan. We’ve all heard about it. Some of our neighbor’s probably have one. The rates are very good but what is it? It’s insurance. Put less than twenty percent down and you need insurance on the loan. Our government will write the policy and qualifying is easier than on a ‘normal’ conventional loan. They even allow as little as 3.5% down and low credit scores are okay. So what’s the catch?
It’s expensive. Typically 1.20% annually on the loan balance paid in monthly installments with your mortgage payment. Plus 1.75% as an upfront fee, which is usually added to your loan amount so you can finance it. Not exactly cheap but it’s the best ticket right now to get into a house if your credit score and down payment are lower than the “normal” 20% down.
There’s even an FHA loan that you can get to help fund needed improvements for those fixer-uppers. Like most governments programs there is some red tape to go through. Home appraisals are more detailed and may require usually minor issues to be fixed before you move in. Think safety and maintenance. Peeling lead paint, broken deck railings and sometimes even rotted window trim can set the phone ringing for the repair guy to get out there and fix it. Gutted or partially completed bathrooms and you need the re-hab loan so the lender can pay a licensed contractor to make everything livable.
Alternatives to the low or no money down loan are the CHFA (Connecticut Housing Finance Authority) loans. This loan offers down payment assistance. Instead of paying insurance the loan they give you 2 loans. The first loan covers the first 80% and a second is at a low interest rate that sometimes includes the closing costs.
Not staying long? Then this loan is not for you. If you make money on the sale or sell within 9 years then they may want their money back, so read the fine print if you’re in a rush to trade up.
L'Altrella Lending Group, LLC NMLS #68506 Office 203.712.1177 Cell 914.462.2196