A Guide to FHA Loans San Antonio
When looking to purchase a home, financing will likely be among your primary considerations.
FHA loans in San Antonio, TX, come with many benefits that could make it the right choice for you. Here’s what you should know:
What Are FHA Loans?
FHA loans are mortgages insured by the Federal Housing Administration (FHA). They are only made with FHA-approved lenders, not through the government or other non-accredited lending institutions.
The role of the FHA is to guarantee the loan issued by banks, credit unions, and other non-bank lenders. In case of defaults, FHA will pay the borrower’s outstanding balance with the lender. This arrangement reduces the lender’s risk.
Types of FHA Loans
When you avail yourself of FHA loans in San Antonio, know that there are other types besides the traditional mortgage.
FHA 203(b) Loan
This is your standard mortgage. The FHA insures mortgages for one- to four-unit dwellings. In addition, the loan must be used to finance a principal residence, which means you have to actually live in the property.
FHA 203(k) Loan
It allows the inclusion of repairs and renovations in the home purchase loan, combining them into a single mortgage. Homeowners can also use this loan when refinancing an existing mortgage to add home improvements into the new loan.
The FHA has a streamlined process that allows you to refinance some previous FHA loans. In order to qualify, you must be current on your mortgage payments, and the loan must already be insured by the FHA. In addition, the new terms must have a net tangible benefit to the borrower.
Home Equity Conversion Mortgage
This is a reverse mortgage program that allows seniors aged 62 and above to convert a portion of their home’s equity to cash and withdraw the funds through fixed amounts, a line of credit, or both.
FHA Energy Efficient Mortgage
Similar to the concept of 203(k), it finances upgrades—but only those that improve a home’s energy efficiency, such as new insulation or installation of renewable energy systems.
FHA Section 245(a) Loan
Known as the Graduated Payment Mortgage program, it is for borrowers whose incomes will increase over time. Initial monthly payments start small and gradually rise depending on the repayment scheme, resulting in shorter loan terms.
How Do They Work
FHA loans don’t work in the same way their conventional counterparts do. Since they are backed by the government, they have certain restrictions and requirements.
To be eligible for an FHA loan, you must meet the following guidelines:
Mortgage Insurance Premiums
For the FHA to guarantee the mortgage, borrowers must purchase mortgage insurance. They have to pay for the upfront premium, which may be rolled into the loan amount or paid at closing, and also make annual or monthly payments.
Upfront, the mortgage insurance premium costs 1.75 percent of the financed amount. On the other hand, the annual premium ranges from 0.45 to 1.05 percent of the loan amount, depending on factors such as loan term, loan-to-value ratio or LTV, and financed portion.
How long you’ll pay annual mortgage insurance premiums will depend on the LTV ratio and loan term. LTV ratio is derived by dividing mortgage amount by property’s appraised value—the higher it is, the riskier a loan is. If your LTV ratio is above 90 percent, you have to carry mortgage insurance until full loan repayment; otherwise, you only have to pay the premiums for 11 years.
The FHA limits the amount lent based on location but adjusts these every year to address rising house prices. That is why FHA loans in San Antonio will have higher or lower limits, depending on which county or area you compare them with. Regions with a high cost of living tend to have higher limits.
Why You Need Them
FHA loans are geared towards homebuyers who may not qualify for standard mortgages or have limited financial resources. Below are a few more reasons to consider them.
Lower Required Credit Score
The minimum credit score for FHA-insured loans is 580, which is lower than the typical required score of 620 for standard mortgages. Moreover, you may still qualify for the government-insured loan even if your FICO ranges from 500 to 579. The low hurdle can allow credit-challenged buyers to borrow.
Reduced Down Payment
Borrowers can put in as little as 3.5 percent of the purchase price as a down payment, provided they meet a minimum credit score of 580. For those with a FICO score between 500 and 579, the required minimum down payment is 10 percent. Although it may be higher, the rate remains much lower than many conventional loans, which can require 20 percent for borrowers with a low credit score.
FHA loans also allow financial gifts and grant from assistance as full payment for the down, which is not allowed in standard loans. Many cities and counties have grants for first-time homebuyers designed to work alongside the FHA loan programs.
Bankruptcy Not a Barrier
If you have gone through bankruptcy or foreclosure, you may still qualify for an FHA-backed mortgage after re-establishing good credit and completing the required waiting period—typically one or two years after successfully discharging the bankruptcy. You must also provide documentation that the circumstances leading to bankruptcy are unlikely to happen again.
FHA loans in San Antonio are available through FHA-approved mortgage lenders, who will offer different rates and closing costs for the same loan amount. It is best to compare offerings from various sources first to get the loan that will work for you.
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