Government-insured Federal Housing Administration loans now make up about 25% of the mortgage market. In stark contrast to the days of ‘no-money down’ lending, most banks now require at least 10% down payment on a mortgage loan. An FHA loan allows borrowers purchase a home with a down payment of as little as 3.5%. While you may not need to take out an FHA mortgage to purchase your next home, there’s a good chance you’ll be selling to someone who does.
Historically FHA loans have gone mostly to low-income borrowers. But, in fact, there’s no cap on what someone can earn. One big difference with FHA loans are the costs associated with the loan. There’s a 1.75% upfront charge as well as a 0.5% annual insurance premium for five years and until the principal balance hits 78% of the sales price or the home’s appraised value. FHA loans were once known for a longer, more difficult closing than conventional loans. But thanks to a new automatic underwriting system and the looser repair requirements, FHA mortgages take only a few days longer than conventional loans to close, says Bill Banfield, a vice president at Quicken Loans.
