26 Mar Holly Walther Lending Team: Fun Fact Friday – What Is An FHA Loan?
Holly: Hey guys, happy Friday. It’s Holly with this week’s fun fact Friday. I hope you’ve had a fantastic week. So this week we are going to continue our series on loan programs. And I want to give you some bullet points on what is an FHA loan. So many times when people call our office and they’re first time home buyers, they have this perception that an FHA loan is just for first time home buyer. Well, that is not necessarily the case. We have many clients that use an FHA loan for their second home purchase. And what I mean by second, I mean, when they’re selling their house and moving up to a new home; an FHA loan is for a primary residence only. It is an assumable loan. It also allows you to have lower credit scores, higher debt to income ratios, and it’s going to be more lenient overall on your profile.
It only requires three and a half percent down. So a lot of times that’s why first time home buyers find it attractive. And then let’s backtrack to the assumability feature. Now in the past 10 years, you haven’t heard that much about the great perk of an FHA loan being assumable because interest rates have remained at historic lows, but we all know rates are fantastic now. So if an FHA loan was the perfect loan for you, a great reselling feature for you in the future, we all know interest rates are going to go up. And when that happens, let’s say five years from now, rates are at 7%. I know that sounds crazy. But guys, 20 years ago, we were there. If you’re going to sell your house and you have an FHA loan at 3%, the potential purchaser, as long as they qualify, they can take over your mortgage.
Well, let’s think about that. You’re selling your house with an FHA loan at a 3% rate. I’m your next door neighbor, and I had a conventional loan. Whoever buys my house has to get their own loan. If a potential purchaser buys your house and they qualify for that FHA assumable loan, they’re getting a 3% rate. Guys, that’s an amazing feature that we don’t talk about, especially in the current environment. But I do think it’s something that’s going to set you apart as we move forward in the future. So I know that’s a lot of information, especially on a Friday, but we’d love to talk to you more if you have any questions and there’s your summary on what is an FHA loan. Have a great day.