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FHA Loans Explained

If you’re a first-time buyer or think you might soon be, it’s very likely you’ll choose the FHA mortgage to buy an Alpharetta home. Why is that? Statistics clearly show that first time buyers favor the FHA mortgage almost two to one over other choices when searching for a mortgage that requires as little cash as possible at the closing table. Your loan officer will provide various financing options and if a low down payment mortgage is a requirement, then you can bet the FHA mortgage will be in the mix. And there are some very good reasons why.

First and foremost, the FHA loan only asks for a down payment of just 3.5% of the sales price of the property. There are some zero down programs such as the VA and USDA mortgage but if you’re not a veteran or you want to buy in Alpharetta or anywhere in the Greater Atlanta area and not in a rural area, neither of those two will work for you.

In addition, FHA guidelines treat financial gifts more favorably than other financing options. You can get a gift from a family member or qualified non-profit for all your down payment plus all your closing costs. On a $250,000 purchase, the can add up to around $10,000 for the down payment and settlement charges. Other loan programs allow for gifts, but they also require the buyers to have a certain amount of their own funds in the transaction.

FHA loans come with a loan guarantee to the lender. Should the loan ever go into default the mortgage company is compensated for the loss. This guarantee is financed by two types of mortgage insurance premiums, a premium paid upfront and rolled into the loan amount and an annual premium paid in monthly installments. Currently, these premiums are 1.75% and 0.80% respectively. These rates can also adjust based upon the term of the loan chosen and any additional down payment the borrowers choose to make.

One of the benefits to the buyers from this guarantee is it gives the mortgage company a bit more freedom to approve a low down payment loan with a lower credit score. For instance, FHA allows for a credit score to be as low as 500 but most lenders set a minimum of anywhere from 580 to 600.

Because of the low down payment and easier qualifying, the FHA mortgage is often the program of choice for those wanting to buy their very first home. Note, it can be an excellent option for any buyer, first time or not, but first timers seem to flock to this special program.

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