FHA Loans

When considering what type of financing to get for a new home purchase, there are many factors involved.  Some variables to consider include the price of the home you wish to purchase, your debt-to-income ratio, your credit score, down payments, etc.  For most people, purchasing a new home can be very stressful and confusing.  At Pacific Trust Group we strive to make your home financing experience simple with minimal stress.

For many prospective home buyers in California an FHA loan is a great option. This is because an FHA loan is one of the easiest types of loans to qualify for because opposed to the case with other types of major loans, it requires a much lower down payment than the 20% down payment this is traditionally required. An FHA loan is a mortgage loan insured by the Federal Housing Administration, a government agency within the U.S. Department of Housing and Urban Development.  

FHA Loans were originally developed in the 1930s during the Great Depression and were aimed at helping borrowers with lower incomes acquire financing for home ownership.  In today’s market, an FHA loan is an attractive option for both the lender and the borrower because it is federally insured.  This creates a lower risk for the lender and allows lenders to provide financing at lower interest rates.

An FHA loan is also an attractive option because the borrower does not need to have excellent credit to qualify.  As of September 2010, minimum credit scores for FHA loans should be 580 or better, however the requirements can vary based on the loan amount.  Those with credit scores between 500 and 579 are limited to borrowing 90 percent loan-to-value.  

Those considering financing for home purchase should also consider the down payment.  An FHA loan requires a minimum down payment of 3.5 % of the total loan amount.  This is significantly lower than many other loan options and can be paid either by the borrower, a gift from a family member, or a grant from a state or local government down payment assistance program.

Additionally, borrowers considering an FHA loan must have mortgage insurance. Two mortgage insurance premiums are required on all FHA loans: The upfront premium is 1.75 percent of the loan amount and is paid when the borrower gets the loan, but can be financed as part of the loan amount. The second is the annual premium, which varies based on the length of the loan, the amount borrowed, and the initial loan-to-value ratio.