Federal Housing Administration (FHA) Loan
First-time home buyers are more empowered than ever by the FHA loan.
These loans, as the name suggests, are insured by the Federal Housing Administration. This allows more people to borrow with low mortgage rates and lower credit requirements.
The down payment can be as low as 3.5%, so you don’t have to worry about paying a ton of cash up front. The FHAS requires an Upfront Mortgage Insurance Premium (UFMIP) and an Annual Mortgage
Insurance Premium (Annual MIP).
The Upfront MIP can be paid either at closing or as a part of your monthly payments. It is equal to 2.75% of the loan value. Why is this necessary? The payments are rolled into an escrow account in
order to make mortgage payments in case you default on the loan. It’s essentially a security net for the lender.
The Annual MIP is payed monthly. Depending on the specifics of your loan, the payments can be anywhere from 0.45% to 2.05% of your loan value. This may seem like a lot, but you typically only
pay the Annual MIP for 11 months. That’s it!
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