In a recent post, we talked a little bit about FHA loans for first-time homebuyers and the importance of asking the right questions of your mortgage broker before you sign on a home loan. Now we want to share answers to a few commonly-asked questions about FHA loans with you.
Q: What is the minimum down payment on an FHA loan?
A: Technically that depends on your credit rating. If you have a credit score of 580 or higher, then you can qualify for a down payment as low as 3.5%. If, however your credit rating is between 500-579, then you will have to make a 10% down payment. Considering that down payments on conventional loans are often as high as 20%, this is quite a nice break you are getting either way.
Q: What if I do not have perfect credit?
A: At a minimum, you do need a credit score of 500. If your credit score is lower, you will not be considered, so you should work on building your credit up to at least 500 before you apply. Remember, if you can get your score above 579, you can qualify for a lower down payment, so it may be in your interest to wait if you can.
Q: Do I need to get mortgage insurance?
A: Yes, mortgage insurance is required if you are getting an FHA loan, even though the loan is insured by the Federal Housing Administration. Technically you are not paying for private mortgage insurance (PMI), but you are paying a mortgage insurance premium for the government guarantee. There is usually an upfront portion to pay, and then a monthly premium.
Q: Is it possible to refinance an FHA loan into a conventional loan?
A: Yes. Doing so will allow you to escape the mortgage insurance requirement if you qualify. There are however quite a few drawbacks and costs to doing so. This means that it is a decision you should think about very carefully if you ever become interested in going that route in the future.
Q: What if I am self-employed? Can I still get an FHA loan?
A: Yes, you can. Just like an employee would have to, you need to demonstrate that you have been stable with your self-employment status and income over the past two years. You can use your tax returns to prove your income. Your mortgage broker can help you to gather the documents you need to apply for the loan.
A: You will need to contact a mortgage broker which specializes in FHA loans for first-time homebuyers. Your mortgage broker can discuss FHA loan requirements in-depth with you and ask you questions about your financial situation to help you figure out if you might qualify. At that point, you can apply for an FHA loan.
Now you know more about FHA loans in Santa Rosa and the surrounding area. Have more questions? We have answers. Contact HPI Financial today at (707) 581-6999 and we will help you out.