FHA MORTGAGES
Michael Holigan: One of the best ways you can buy a home is through the Federal Housing Administration, or an FHA loan. It allows for a smaller down payment and you can carry more debt than most conventional loans. Newlyweds Charles and Shannon Teer knew they wanted to stop renting and start their life as a couple with a new home. But there were financial obstacles.
Charles Teer: We had so many other expenses with the wedding and with furnishing the house and everything else and moving.
MH: An FHA loan was the answer to their prayers. The Teer's bought their home for just three percent down, a typical down payment for an FHA loan. What's more, unlike conventional loans, your FHA down payment, closing costs and pre-paid fees can be paid for entirely with money relatives give to you. FHA requirements are also less stringent about your financial obligations. With an FHA loan your house payment cannot exceed 29% of your gross monthly income. And your total debt cannot be more than 41% of your gross monthly income. With a conventional loan, the sum of all your debt cannot exceed 38%. What kind of cash do you need to buy a home with an FHA loan? Say you had your eye on a $90,000 house. Your down payment would be about $2,150. Your mortgage insurance would be just under $2,000 and you could also finance that cost into your home loan. Closing costs would be about $2,000, several hundred less than a conventional loan; and your hazard insurance, which you prepay, would be about $1,100, depending on where you live. Total cost of getting into that $90,000 home - about $5,200. But remember the beauty of an FHA loan, you don't have to pay that whole $5,200 yourself. You can get a gift from a close relative. In some cases the builder or seller can pay part of your closing costs and even in other cases you can actually finance part of those costs. By the way, interest rates are competitive between the FHA and conventional loans. It all added up for the Teer's.
CT: I had been renting for quite some time, and, you know, with getting married and eventually wanting to start a family, it was just the best time. Interest rates were fairly low and property values were stable, so I just felt it was the right time.
MH: The FHA sets the limits on what you can pay for a home in your area. Each one is set up by the regional HUD offices, so check with your local mortgage lender to see how much you can finance with an FHA loan.
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Episode 63 1997 - 98 Season
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