June 9th, 2011
For many people, the toughest part of getting a mortgage is coming up with enough money for the down payment. It can take months, or even years to save the tens of thousands of dollars necessary if your mortgage product requires 5 percent or more down.
In this article from The Washington Times, Henry Savage discusses a loan product that may lessen this burden: the FHA loan.
Loans from the FHA (Federal Housing Administration) require the least amount down, at just 3.5 percent in most areas of the country, including Portland, Maine. Therefore, for a $250,000 home, you’d be required to put down $8,750, leaving a loan of $241,250.
Plus, as Savage points out,
The FHA allows gift funds for 100 percent of the down payment from a family member. It also allows the seller to contribute up to 6 percent toward the buyer’s closing costs.
For many people – especially newly weds who have received money as a wedding gift – this is huge. Some other loan products require the money for the down payment to be in your bank account for a certain amount of time, and they do not allow a family member to provide the money.
Since the leniency of the FHA loan makes it more risky, you must also pay mortgage insurance. There is an upfront insurance premium of 1 percent of the loan amount, which can be financed into the loan, and an annual premium of around 1.15 percent there after, which is added onto the monthly payment.
So, if you’re purchasing a $250,000 home in Maine with $8,750 down, this will add on an addition $2,412.50 upfront, making your loan amount approximately $243,662. Then, your annual premium of 1.15 percent would add approximately $2,802 for the year, or $233 per month.
According to Savage, “Factoring in the monthly MIP bumps the “real” interest rate to about 6.125 percent. Still, for folks with less-than-perfect credit and low cash, it’s not a bad deal.”
Savage also notes that people who have an existing FHA loan can get lower interest rates without an appraisal through a streamline refinance. This is critical at a time when the value of homes is dropping. To qualify for a streamline refinance, the new loan amount cannot exceed the existing balance, and you must have a credit score of at least 640.
Call Acadia Lending Group to inquire about a FHA mortgage for your Portland, Maine home today!