April 2

FHA Loan vs Conventional in 2021 | Federal Housing Administration

Millions of people have chosen FHA loans for financing their homes. How do they work? Is an FHA mortgage for you?

Federal Housing Administration (FHA) loans are one of the most popular types of residential mortgages. Hundreds of homeowners and home buyers in Seattle have used them. So, what makes them so special? How are they different to other types of home loans? How do you get one? 


FHA Loans 101: What Are They?

FHA stands for the Federal Housing Administration. The FHA is a part of the US Department of Housing and Urban Development (HUD). HUD regulates many parts of the housing and home loan industry. 

The FHA was created by congress back in 1934 to help increase homeownership. It was a time when there were far more renters than homeowners and it was hard to get mortgages. Unemployment was high, energy costs and inflation was rising, and lenders weren’t making it easy to qualify for loans.

Since then the FHA has backed millions of loans, and insures over one trillion dollars in US mortgage loans.

FHA loans function like other mortgages in most ways, with a few minor feature differences.


What To Use FHA Loans For

The most common and obvious use for FHA loans is for buying a home. 

What you might not know is in addition to financing the purchase or refinance of single family homes, they can also be used for duplexes, triplexes and fourplexes. 

The FHA is also one of the largest backers of financing for hospitals, care facilities and multifamily apartment buildings too.


Where Do You Get An FHA Home Loan?

The Federal Housing Administration only lays out the rules and insures these mortgage loans. They do not directly loan money. 

You will need to find a Seattle mortgage broker or FHA approved lender to apply with and get your loan from.

The FHA simply insures the loan to the benefit of the lender. They are essentially saying they will guarantee to help bailout the lender if they make loans that are easier for home buyers to get and follow FHA underwriting rules. That reduces the risk for mortgage lenders and helps borrowers get more aggressive loans which lenders may otherwise consider too risky to make or would charge a lot more to originate. 


What's So Great About FHA Loans?

There is a lot to love about FHA loans. Here are just some of the highlights.


Low Down Payments

One of the most popular reasons to choose FHA home loans is for the low down payments. Using an FHA loan you can buy a home in Seattle with as little as a 3.5% down payment.


Seller Contributions

In addition to lower down payments, FHA loans allow the seller to pay a lot of your closing costs and even credit you for repairs and improvements to be made, lowering the cash you need to buy a home even further.


Co-Signers

You can even benefit from using a co-borrower to help you qualify to purchase your home. 


Low Interest Rates

Since the government is essentially insuring the lender is going to get paid even if you stop paying your mortgage lenders have less risk. Additionally, as the whole point of this agency is to help more people become homeowners, interest rates can be some of the lowest you’ll find when shopping for a mortgage. 


Low Credit Score Requirements

FHA loans have some of the lowest credit score requirements of all home loans. They are famous for allowing credit scores as low as 580. Though these requirements can change over time, and individual lenders often put their own criteria on top.


Easier Underwriting

In general, FHA loans are easier to qualify for. That includes more lenient debt to income ratios, income verification requirements and more. 


Our Most Popular FHA Loan Products

FHA Prime

Take your purchase to a new level with industry-leading government rates and pricing. This is the obvious choice for the top-tier FHA Seattle Washington home loan client, with less than 5% to put down.

  • Loan amounts up to $822,375 for single family homes, up to $1,581,750 for fourplexes
  • Up to 96.5% Loan to Value
  • Non-occupant co-borrowers allowed
  • Underwrites to AUS findings
  • Includes Conventional, High Balance and ARMs


FHA Streamline Refinance

SMB FHA Streamline programs allow you to refinance your FHA mortgage with no Appraisal or AVM. Time is of the essence- use our quick closing process to secure your rate today.

  • Loan amounts up to $667,000
  • Debt ratios accepted up to 55%
  • Property Inspection Waivers honored
  • Underwrites to AUS findings 
  • Includes Conventional, High Balance and ARMs


HUD REO

Win in competitive offers. SMB can close your HUD REO in as little as two weeks from submission while allowing hold backs up to $5,000 for escrow repairs!


FHA ARMs

SMB's aggressive ARM pricing can provide a lower payment for you, which in turn can help purchase a bigger home. 

  • 5/1 Treasury ARM available
  • Quickly and easily price out your loan using our Easy Qualifier (EQ) to determine the best scenario for you
  • Qualifies at note rate


How Are FHA Loans Different?

There are three main differences you should be aware of when applying for a FHA loan.

1. FHA Funding Fee

In order to be able to continue to operate and back such convenient and lenient loans for home buyers the FHA charges a Mortgage Insurance Premium (MIP). This is a percentage of the loan amount, and the rate depends on location, loan amount and loan to value (LTV).


2. FHA Appraisals

Appraisals for FHA home purchase loans must be completed by a HUD approved appraiser. These appraisals are notoriously more thorough and have a focus on health and safety features of a property that go above and beyond regular appraisals. Similar to Section 8 inspections for leasing. That’s good for knowing your new home goes above and beyond conventional standards, but it can cause some delays when things need to be brought up to those requirements before closing.


3. FHA Approved Condos

Lenders, and especially the FHA, approach condos a little differently than the average stand alone single family home. They want to be sure the condo association is solvent, healthy and financially strong. Many are not. Taking a gamble on a non-warrantable condo can require a much different loan with a much larger down payment.


Refinancing An FHA Home Loan

FHA loans can be especially beneficial when refinancing. The FHA streamline refinance makes things incredibly fast and easy. 

Most notably a streamlined FHA refinance means higher DTI ratios are allowed, and no appraisals are required. 


Specialty Loan Programs And Alternatives

There are two more specialty FHA loan programs you may want to explore.

The EEM is an Energy Efficient Mortgage which enables homeowners to finance energy efficient improvements in with their loan amount. 

The FHA 203k loan enables homebuyers to purchase a home that needs repairs and to receive tens of thousands of extra dollars to renovate and fix up the home. 

Other attractive and low down payment loans may include:


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