The FHA (Federal Housing Administration) was set up to provide borrowers with even more options for affordable home financing loans. It is crucial that you’re aware of these options before buying a home because your local lender may or may not make FHA-backed loans. Buying a home is a big deal. And making a wrong choice will cost you big time. You don’t want to make a mistake when it comes to your hard-earned money, do you?
Florida mortgage company offers a variety of loan programs, including FHA loans. There are a lot of misconceptions about FHA loans. Some homeowners don’t understand the ins and outs of the FHA loan and become victims of those who try to take advantage of their ignorance.
So what are those misconceptions about the FHA loan? Let’s find out together.
Debunk 7 FHA loan myths
1. Myth – You must put a down payment of 20% or more to buy a home with an FHA loan
Truth: You don’t need to put any money down with an FHA loan as long as you meet the lender’s lending standards. However, if you want to put a little bit of money down and pay less for your upfront costs (which may be required), it is possible to make a smaller down payment on an FHA loan.
Also, with a Florida home loan, even if you put 3% to 4% down with your own money, the U.S. Government will ensure the rest as long as you meet the lending requirements. In addition, there is no penalty for putting 10% to 20% down with an FHA loan.
2. Myth – You must have a perfect credit score to get an FHA loan
Truth: People with credit scores in the mid 600’s or lower can qualify for FHA loans, but the interest rate may be high. There is a choice called “down payment assistance” for those with a credit score of 580 or lower, where the down payment requirements are reduced to as little as 3%.
This program makes sense if you have some savings and your credit score isn’t so bad. In addition, it is possible to improve your credit score within one year for a better interest rate.
3. Myth – You have to pay mortgage insurance on an FHA loan
Truth: With an FHA loan, there are two types of insurance; MIP (Mortgage Insurance Premium) and MI (Loan Insurance Premium). The upfront cost for both is rolled into the loan, but it is set up as a single premium and can cost as little as 1.5% of your loan amount. MIP will remain on your loan for 11 years and MI for 5 years (or less depending on how much amount you put down). You can do an FHA 203k remodel and eliminate both premiums. Also, if you put down 20% or more, you can avoid both premiums.
Florida mortgage lenders recommend a 20% or more down payment with FHA loans to avoid paying MI forever.
4. Myth – The interest rate for an FHA loan is always higher than a conventional loan
Truth: An FHA loan interest rate is only slightly higher than a conventional loan, but it’s possible to get an FHA loan with the same rates as conventional loans. If you put less than 10% down, the financing options are similar to a conventional loan. However, if you pay more upfront with an FHA loan, it makes sense to compare interest rates because the rate on an FHA loan can be lower.
5. Myth – An FHA loan is only for first-time homebuyers
Truth: An FHA loan isn’t just for first-time homebuyers, but you should know how FHA loans work. If you have an FHA loan and sell a home, you have to repay the FHA the amount of the loan if it sells for more than your purchase price. So, if you can afford it, putting 20% down will prevent that from happening.
In addition, if you have an FHA loan and refinance into a conventional loan or sell a house within 36 months of buying it, you will have to repay the FHA the amount that exceeds that sale price. Get this in writing before you refinance or sell your home.
6. Myth – You can’t be a landlord or investor to qualify for an FHA loan
Truth: This is not true at all! It’s possible to own more than one property if you don’t intend to live in any of them. In fact, it is possible to purchase a home with an FHA loan Florida and rent out the other properties you own. This can be an amazing way to make money on your investment properties – as long as you don’t live in any of them! FHA loan rules limit the number of homes you can own and still qualify for an FHA loan.
7. Myth – You can only get an FHA loan if you live in federally subsidized housing
Truth: This is also not true; most homeowners qualify for an FHA loan no matter where they live. If you rent, you would be able to use your FHA home as collateral to buy another one or refinance into a lower rate just for you under the FHA streamline program. In addition, you can get a VA loan and avoid paying MIP if your home qualifies for financing without this insurance.
Conclusion
There are several myths about FHA home loans that homeowners can use to save on their monthly payments. You can buy a home and refinance into less expensive rates with an FHA loan. Just remember that if you put 20% down, it is even easier to qualify for an FHA loan. Also, you can use the money from selling a home as a down payment on another property and get rid of mortgage insurance with an FHA 203k renovation loan. The best thing you can do is research different financing options.
Don’t listen to the myths; get in touch with a Florida mortgage company today and process your FHA loan!
