One of loan options that consumers have that does not require large down payments are loans insured by the Federal Housing Administration (FHA). The purpose of this program is to encourage home ownership by helping people that do not have significant savings with the purchase of a home. FHA loans are available with as little as 3.5% down payment, with the balance, 96.5% of the purchase price, financed with a loan. The amount borrowed may be up to $708,750. Eligible properties include single family detached homes, properties with 2-4 living units, condominiums and PUDs (Planned Unit Developments).

FHA loans require two insurance premiums. There is a premium paid at the front end of the loan, known as the Up Front Mortgage Insurance Premium (UFMIP). The amount of this premium is 1.75% of the loan amount and it can be added to the principal balance of the loan, thereby allowing that premium to be financed.

The second premium is an annual premium but is paid monthly. The rate used to calculate the annual premium will vary depending on the amount of the loan, the amount borrowed in relation to the value of the home (Loan to Value, or LTV) and the term of the loan (15 year or 30 year term). Applying those variables will produce a rate from 1.3% to 1.55% of the loan amount. The monthly premium payments must be paid for the life of the loan.

There are additional qualifying factors. The intended property must become the primary residence of the borrower. The borrower may not own another property. Investment property purchases are ineligible. In addition to FHA requirements, lenders may impose their own qualifications, including credit requirements. A prospective borrower interested in determining whether he/she qualifies for an FHA loan or is interested in learning more about FHA and the programs available should consult with a knowledgeable mortgage broker.

Written by Kenneth Campbell - (203) 912-0612 - is a mortgage loan originator (NMLS #137681) with Westport Mortgage LLC (NMLS #13791).

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