While a conventional loan typically requires a down payment of 20 percent, the down payment on an FHA loan can be a low as 3.5, which has been key to expanding home ownership for decades.

Furthermore, the source of the funds used for a down payment can be (in part or whole) a cash gift from a family member, as well as funds obtained through a grant from a state or local home buyer’s assistance program.

Other loan types often require that the source of funds used for a down payment be exclusively verified.

Closing costs include an appraisal, a credit report, title expenses, and more, and can often be covered by the seller, or the lender themselves. A home seller may, for example, agree to cover all or part of the closing costs as part of the negotiated price.

Closing costs can also be included in the loan, although a higher interest rate may apply.

Mortgage Insurance for an FHA loan is a two-part process: an initial premium (1.75 percent of the total loan) paid upfront, and an annual premium broken into monthly installments, included as part of the total monthly loan payment. The upfront premium is typically included in the loan.

The total amount of the loan, as well as the years financed will determine the annual/monthly premium installment. Borrowers who make a larger down payment can typically reduce, or avoid additional mortgage insurance fees, as they have personally assumed more of the risk with a larger down payment.

To encourage revitalization of older neighborhoods or damaged homes, FHA provides two types of loans to help homebuyers reserve a portion of loan funds to accomplish non-structural and structural repairs.

A standard 203k loan is provided for properties with structural needs, such as a new roof, room additions, the replacement of plumbing or electrical, as well as a deck, or garage addition. Pools and other ‘luxury’ items are excluded.

The maximum amount under a standard 203k FHA loan is determined by the lesser of two values:

Appraised value of the home plus costs of repairs, or 110 percent of the estimated value after the repairs/renovations are complete. A more streamlined 203k — think 203k Lite — covers non-structural upgrades, such as paint, new flooring, or upgraded appliances. A streamlined 203k loan allows for $35,000 above the purchase price of the home.

Qualifying properties for a 203k loan include:

• A single-to-four-family home that has been completed for at least a year
• A home that has been torn down if some existing foundation remains
• A home that you wish to move to a new location
• Condos may be eligible, but not co-ops.

The Chi Team has been successfully securing FHA financing for our clients for over two decades.

For more information about applying for an FHA loan, speak to one of our experienced team professionals by calling us.