FHA Loans in Michigan
Are you looking for a loan for your new home in the state of Michigan? Then you might want to look in to the possibility of getting an FHA loan.
What is FHA?
FHA mortgage programs are there to help out families with low to moderate incomes. It assists them in the process of becoming home owners by lowering the costs of residential mortgage loans. By protecting the lender against defaults on mortgages, FHA loans thus encourage the lender to make loans to borrowers who might not be able to meet the minimum underwriting requirements.
The current FHA system is reflective of the original one that started out in the 1930s. One of the tools included in this package is One to Four Family Mortgage Insurance. This type of insurance expands home ownership opportunities for first time home buyers who typically would not qualify for a more conventional loan.
Throughout the past eighty years, FHA loans have gone through many changes. Perhaps the most important of these changes happened in the 1980s, when a clause was added to allow numerous advantages to both disadvantaged and first time home buyers.
As opposed to the more conventional forms of mortgages, which often require the borrower to make a down payment of at least 10% of the house’s purchase price, FHA mortgages allow families to make down payments for as little as 3% of the house or condo’s purchase price. The FHA insurance thus enables borrowers to pay up to 97 percent of the house’s value via their mortgage.
Also with conventional loans, the borrower has to pay a bunch of closing costs at the time of purchase. These fees can amount to three percent of the home’s value. The FHA allows the borrower to finance a lot of these fees. Thus, the up front costs of buying a house are significantly reduced.
Of course, FHA mortgage insurance is not completely cost free. Borrowers enlisted in this program do have to pay an up front insurance premium, although this may be financed. This is generally paid at the time of purchase. Monthly premiums also have to be paid – these are added on to the regular mortgage payment.
In addition, FHA guidelines impose limits on some of the fees that mortgage companies are allowed to charge when authorizing a loan. As an example, there is the loan origination fee. There is a limitation set on this fee that states that the mortgage company is not allowed to charge more than one percent of the mortgage amount.
In the 1980s, the government adapted a “streamlined” refinancing program in order to accommodate the booming real estate market. This refers to the amount of underwriting and documentation that the mortgage company has to go through in order to authorize a loan. It does not mean that the transaction will be cost free, though.
For the streamline option, there are some basic requirements that one must fulfill. For one thing, the mortgage has to already be insured by the FHA. The mortgage also has to be current and paid on time in order to be renewed.
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