The FHA was established in 1947 and experienced a re-birth after banks discontinued the stated-income qualification around 2008. For buyers who had between 3% and 10% down FHA became the “only game in town,” as conventional loans required 10% down before the minimum down payment dropped to the current 5% level.
Here are the top 10 things to know about FHA loans:
- FHA is NOT a first-time home buyer program.
- FHA allows buyers to have one FHA loan at a time–with few exceptions.
- FHA charges monthly mortgage insurance FOR LIFE on ALL LOANS regardless of the down payment.
- FHA allows a low 3.5% down payment.
- FHA charges the highest mortgage insurance premiums in the industry.
- FHA allows for bankruptcies, foreclosures, short sales, and loan modifications, with a waiting period of only a few years after-the-fact.
- FHA does not require “reserves” in most cases, meaning you are allowed to have only $1 in the bank “post-close,” i.e. after paying the down payment and closing costs and closing escrow.
- FHA allows “owner-occupied” properties only. No investment properties or second homes allowed.
- FHA charges a 1.75% one-time upfront mortgage insurance fee on all loans in addition to monthly mortgage insurance.
- FHA’s monthly mortgage insurance premium has tripled since 2010, and its one-time upfront mortgage premium has almost doubled since 2010.
The most common misconception is that FHA is a first-time home buyer program, which it is not. But with its low 3.5% down payment option, many first-time home buyers use FHA loans and, for them, they can be a great option.