FHA Loan

FHA Loans are great for first time home buyers because they only require a 3.5% down payment (coming up with the down payment is usually the hardest thing for the first time home buyer). FHA Loans are fixed-rate loans and allow 100% of the buyer side closing costs for a transaction to be a gift from a family member or a credit from the seller so they are great for buyers that make a good income but don’t have a lot of savings. 

You see FHA Loans a lot in the $200,000 to $400,000 price range in affordable areas. 

The FHA Loan program is administered by The Federal Housing Administration (FHA).

FHA logo

The FHA was created in 1934 as part of the National Housing Act during the great depression to stabilize the housing market.

Qualifying for an FHA loan is flexible, even if, as a buyer, you do not have perfect credit. A downside to buying with less than 20% down payment is that there will be mortgage insurance (also called M.I.) which is an additional monthly expense. For that reason, many buyers with 20% or more available put down choose conventional loans offer FHA loans for the lower cost. FHA loans require the borrow to pay mortgage insurance.

 Don’t forget- FHA Loans have impounds! Impounds are an additional closing cost. Typically lenders require 6 month impound on property tax, and 2 months impound on insurance. 

FHA Impound Example:

Purchase Price $250,000
Annual Property Tax = $3,125
Monthly Property Tax $260/mo.
$260 x 6 months = $1,560 Property Tax Impound

Home Owners insurance Policy $1,200
Monthly Insurance $100
$100 x 2 = $200 Insurance Impound

The Impounds are a closing cost, and are due before closing. 

The FHA Loan Program has maximum price limits. Obviously you can’t buy a $20M dollar mansion with an FHA loan! The FHA Loan limits are set every year, and vary by county. 

The current maximum FHA Loan Limits in Los Angeles are:

$636,150 Single Family

$814,500 Duplex

$984,525 Triplex

$1,223,475 Fourplex

For properties with a purchase price above the maximum loan limit, those properties don’t qualify for the FHA loan program. Fortunately, in Los Angeles county, the loan limits are quite high, higher than most other counties in  California. 

FHA Loans requires an FHA appraiser to inspect the property. FHA loans qualify two things- they qualifying you as the buyer and also the property. the FHA will not loan if the property is in substandard living condition (if the property is a major fixer, the FHA has the 203B Loan for that)- the appraiser will send a list of items that need to be fixed before the loan can go through- once the work has been completed another appraisal will be done and the loan can fund. If you have had an FHA loan in the last three years you will have to wait until 3 years after the loan date to qualify for a new FHA loan. Visit this link for a helpful checklist of information you will need to gather to apply: http://www.fha.com/loan_checklist.cfm

 

 

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