How do FHA Home Loans Work?

FHA Home Loans are the most popular loan program available in the Sonoma County Mortgage market. While these loans remain popular unfortunately the media does a very poor job of explaining to consumers how these loans actually work. All FHA loans have mortgage insurance no matter what the down payment is and they will also contain an escrow account to collect for monthly property taxes and hazard insurance. So the way these loans actually work are a little bit unique.

Let’s take a $300,000 house sales price on a house. The minimum down payment needed is 3.5%. Our $10,500 is our down payment and that would be deducted from the $300,000 house price. That gives us a base loan amount of $289,500. Now this is the part that gets a little interesting because now we have to start factoring in mortgage insurance. There is a monthly mortgage insurance premium which is based on 115% of the base loan amount and there is a 1% upfront mortgage insurance premium which is financed into the loan amount. So if we take our $289,500 loan amount for monthly mortgage insurance is $277.44 per month.

Here is the rest of the math calculating an FHA Home Loan.

Now we take 1% of the base loan amount which is $2895 and we added to the base loan amount and amortized over 30 years. This means our financed loan amount is $292,395. If the interest rate we are working with is 4.375% that means our mortgage payment before fire insurance and taxes is $1737.33 and we get that figure by adding together the calculated mortgage payment plus the monthly mortgage insurance. We can estimate fire insurance would be approximately $60 and property taxes would be $312.50 per month (based on 1.25% of the purchase price) so our total monthly payment will be $2109.83 per month.

An FHA Home Loan can make a great Sonoma County Mortgage Loan and they offer very flexible underwriting. What makes these loans so popular is the down payment needed is 3.5%, any credit score 620 or above is permitted and they allow for relatively higher debt to income ratios provided the borrower can provide a reasonable explanation of being able to handle the full mortgage payment. Learn how to get rid of mortgage insurance on your home loan.

FHA Home Loans offer long-term fixed stability and promote homeownership. If you live in Sonoma County and are thinking about purchasing or refinancing a home and don’t have a big down payment or a lot of equity, consider an FHA Home Loan. These loans are insured by the Federal Government. Visit www.sonomacountymortgages.com for your next FHA Home Loan today.