How the federal housing administration protects your investment
First of all, FHA loans require two-part mortgage insurance. This consists of a one-time payment when first purchasing the loan (of 1.75% of the loan value) and then an annual payment of less than 1% the loan value (the exact amount is dependent on the length of the loan and how much money was put down).
Though this is often presented as a drawback of the FHA loan, it serves as protection against events like the stock market crash last decade. Mortgage insurance premiums allow the FHA to provide loans to people with worse credit scores without putting everyone’s money at risk.
This doesn’t only protect the banks – it protects you as well.
FHA loans also have strict income limits. In Shasta County, they cannot be used to purchase single unit properties valued at more than $275,665. This keeps people from using government-backed funds to purchase properties that they cannot afford, and allows the FHA loan to serve its intended purpose – helping first-time home buyers and low income people.
Finally, refinancing options for FHA loans are very flexible compared to other loans. Should you need to refinance, you may find it easier to do so than with a conventional loan, for example. No appraisal and very little documentation is required.
FHA loans have a few other requirements that are designed to reduce the risk of default on the part of the buyer.
For instance, homes financed by the FHA must conform to certain standards of safety, security, and habitability. The home must be “ void of any physical deficiencies or conditions that could compromise its structural integrity.” Beyond mere structural problems the home must be in good repair. Exposed electrical wires, inadequate roofing, and code violations of any kind must be repaired before the loan is originated.
The burden for this does fall on the loan originator, though the FHA will make inspections, and potentially assist with the cost of repairs in the case of certain loan types. But it’s important to note that these requirements are for the homeowner’s benefit. If they take out a loan on a house that turns out to have serious problems, then whatever equity they acquire will become worthless.
All in all, FHA loans are not necessarily more secure than conventional loans, but they are definitely the most secure type of loan that is affordable for a first-time home buyer. If you want a loan that you can trust in Redding, an FHA loan may just be the best product for you.