FHA loans are an attractive option, especially for first-time homeowners in Peoria, Dunlap, Morton, Metamora, Bartonville, East Peoria, Washington, or anywhere throughout the State of Illinois, because it is insured by the Federal Housing Administration (FHA). Primarily, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their mortgage payments. Typically, the borrower can be approved with just 3.5% down vs 5% -20% that is required on other loan programs.
What is a FHA Loan?
The Federal Housing Administration (FHA) is a division of HUD. FHA loans are loans meeting FHA program criteria made by approved lenders. FHA insures those lenders against loss in the event of default on those loans. The advantage to the borrower is that the lender will make the loan with a very high loan-to-value ratio, because of the insurance.
FHA funds the insurance from a mortgage insurance premium (MIP) charged to the borrower. Most FHA mortgages require payment of an upfront mortgage insurance premium (UFMIP). For most mortgages the premium is 1.750% of the loan amount, payable at closing or added to the loan amount and financed. The UFMIP is nonrefundable (except to the extent that a portion may be applied to the UFMIP of another FHA-insured mortgage within three years).
In addition, most FHA loans require payment of an annual mortgage insurance premium, payable monthly as part of the mortgage payment. This premium is based on the loan program, the loan term and the loan-to-value ratio.
Benefits of FHA Loans
There are many benefits to FHA Loans, beyond just a lower down payment. FHA loan offers lower down payment combined with more flexible credit guidelines and no income limits for all borrowers no matter if you are a first time or non-first-time homebuyer. FHA loans go down to lower credit scores, no income limits, higher debt-to-income ratios, and less time from a bankruptcy or foreclosure. Some or all of the down payment required on an FHA loan may come from flexible gift sources such as an immediate relative, a labor union or employer, a government agency or public entity, a nonprofit charitable organization. FHA will allow the seller to contribute up to 6% of the purchase price toward the buyer’s actual closing costs, prepaid taxes and insurance, discount points, buydown fees, mortgage insurance premiums, and other financing concessions, but nothing toward the down payment.
FHA Loan Eligibility
FHA Loans have more flexible requirements than traditional conventional mortgages. There are no income eligibility requirements or geographic restrictions and lower credit scores than other conventional loan programs. In some cases FHA loans have no credit scores with non-traditional credit tradelines acceptable. Non Occupant co-borrowers are allowed as well. For more details, please call us at 309-222-8286.
FHA Loan Limits
Different counties have different limits on how much you can borrow for an FHA Loan, but in January 2020, the maximum FHA loan amount for most counties is $331,760.
Get Pre-Approved for a FHA Loan
If you are a first-time home buyer or simply seeking a lower down payment in Peoria, or anywhere in Illinois, contact Home Mortgage Specialists, Inc. at (309) 222-8286 for more information, or fill out the form on this page.