Barry’s Blog: FHA Loans

BarrysBlog_FBEverything you wanted to know about FHA loans but were too scared to ask…

3-letter abbreviations to stay away from: DOA, DUI, DWI, MIA, KKK, HIV, XXX.

3-letter abbreviations to gravitate towards: FHA.

This is short for the Federal Housing Administration. It is not the end-all answer for people that can’t get a conventional loan, but it is an alternative to try. What are the pros and cons of FHA? There are two pros that stand out from the rest. First, FHA is not as anal about the credit scores like our friends at Fannie Mae and Freddie ‘Big’ Mac. We’ve routinely seen borrowers with scores in the 500s get approved for FHA loans. Second, you only need 3 ½ percent down payment to buy a property, where a conventional loan takes at least 5% (and lately on condos 10%). There are two negatives with FHA loans.

First, the borrower will pay MIP (Mortgage Insurance Premium – this is like PMI – only the premium gets paid every month and stays with the loan for the life of the loan (whereas PMI drops off after you’ve obtained 20% equity in the home). Second, in addition to closing costs the borrower will typically pay a point up front.

FHA Approvals
On a single family home they are easy to get. On condos we need to get what is called a ‘spot approval’ if the entire building is not FHA approved. A spot approval means the individual unit is approved but not the whole building. If you are working with a developer let us know and we can help you get the entire building FHA approved which will make your developer really happy.

Interest rates FHA loans typically carry the same rate or a touch higher when compared to conventional loans. And where are rates these days? A 30 year fixed is at 5.125% – slightly better than last week. Keep in mind, rates can be better or worse depending on credit score and equity in the home.

Trivia
Last week we wanted to know the original candy that director Steven Spielberg wanted to use instead of Reese’s Pieces (but couldn’t secure the rights). The answer – which most of you got – was M & Ms. This week’s trivia involves me. Of the following 3 statements, two of them are false and one is true. Tell me the true statement and you will win a PERL Mortgage lucky pen. 1. While miniature golfing in 1989, I was hit by lightning. 2. I was born with three kidneys. 3. At a bar in 1996, Tori Spelling told me I was the best dancer she had ever danced with (then gave me a fake phone number as she left the bar).

Good luck!

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