Serving Forsyth, Fulton, and Gwinnett Customers with Home Mortgages since 1996

We have refinanced with Avalon multiple times, and our experiences could not have been better. Avalon's staff is honest, professional, and efficient. This is an exceptionally well-managed company.  - Waymon and Pat
FHA vs Conventional Loans

What is a FHA Loan?


The Federal Housing Administration provides a loan guarantee program in lieu of private mortgage insurance so qualified borrowers can get a mortgage loan with a low down payment.


The FHA doesn't lend you the money. They guarantee the loan, so the lender doesn't take on a financial risk by extending you credit. The U.S. HUD website can help you find HUD-approved counselors in your area who can answer your questions about FHA loans, specific to your situation.


The most popular FHA loan has a minimum cash investment requirement of 3 percent but permits 100 percent of the money needed at closing to be a gift from a relative, nonprofit organization or government agency.


FHA lending guidelines are not as strict as the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Sellers must pay part of the closing costs, while some of the borrower's closing costs can be included in the loan amount.


FHA loans are assumable, meaning you can transfer your loan to the new owner if you sell your house. That allows the new owner to take over your FHA loan without the additional cost of obtaining a new loan. To assume the loan, the buyer has to meet the credit standards for the loan.


This feature can make it easier to sell your home.


There are three FHA loan programs:

1. FHA 203(b) fixed-rate mortgage (15- or 30-year loans)
2. FHA 251 adjustable-rate mortgage
3. FHA 2-1 buy-down loans


There's also an Energy Efficient Mortgages program that allows homeowners to finance adding energy-efficient features to new or existing homes as part of either their home purchase or FHA refinancing.


The biggest disadvantage to FHA loans is the mortgage insurance premium. In most 15- or 30-year FHA loans, the borrower pays 2.25 percent of the loan amount at closing, along with a 0.5-.55 percent annual renewal premium paid annually over the life of the loan.


Unlike private mortgage insurance, the mortgage insurance premium isn't canceled when the homeowner's equity reaches a target level. You may qualify, however, for a partial refund of the upfront mortgage insurance premium if you owned your home for less than five to seven years. It's five years for loans closed after Jan. 1, 2001 and seven years for loans closed before Jan. 1, 2001 and after September 1983.


You need to shop rates when looking for a FHA mortgage just as you would with a conventional loan because the rates are established by the lender, not the government. FHA loan rates are typically higher than conventional (non-government guaranteed) loan rates but shouldn't be a lot higher unless you have credit problems.


Before you start applying for loans you should request a copy of your credit report from at least one of the three major credit bureaus and get a credit score from them as well.

Conventional VS FHA

Disadvantages of FHA Loans vs Conventional Mortgages
A disadvantage of having an FHA loan is that the FHA insurance is not automatically cancelled when you reach 22% equity. However, you may be eligible for partial FHA insurance refund. Check with a HUD approved counselor if you are eligible for an FHA insurance refund in your circumstances.

Another disadvantage of FHA loans is that FHA rates will be a little higher than conventional mortgage rates, as they are lender set and are not established by the government. However, that is normal, as FHA strives to be alternative to sub-prime loans, which do come with higher rates than prime loans.

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Why: Refinance

FHA vs. Conventional Loans

FHA Loans have several advantages over conventional loans, including lower down payments and more relaxed credit-qualifying guidelines. The federal government created FHA loan programs to encourage homeownership throughout the country. The FHA can help people to obtain a loan with little down payment. The FHA does not supply the loan; it simply insures the loan to limit the risk to the lender.

Benefits of a FHA mortgage:

· A 3% down payment, as opposed to a 5% or more down payment on  traditional loans

· Low monthly mortgage insurance

· Low closing costs, which are regulated by HUD

· Credit scores that are usually lower then conventional loans

· Qualify for a loan two years after a bankruptcy

· Qualify for a loan three years after a foreclosure

The FHA loan guidelines are more relaxed than conventional loan guidelines; this includes less strict regulations about past bankruptcies and/or foreclosures, job requirements, use of alternative credit, and debt-to-income ratios. The FHA ensures that their interest rates remain competitive with the interest rates of conventional loans.

FHA loans were originally created to help first-time buyers; people who are not first-time buyers may qualify, however, the FHA does not allow anyone to have more than one FHA-insured loan at a time.

The borrower is required to pay an insurance premium upfront, but this premium can be financed into the loan amount directly. The borrower must also pay a monthly premium, which is .50% -.55% of the total loan amount divided equally over 12 months. Unlike a conventional loan, the FHA requires a termite report and clearance, as well as a few other property condition standards, to qualify for a loan.

updated 05/20/19   
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" We would like to take this opportunity to tell you how much we appreciated the way in which the refinancing on our home was handled by our loan officer.  He did his very best to make this process as easy as possible for us.  He made the trip to our home to talk to us at our convenience and let us know the process we would be going through... He also got the closing close to our home so we would not have a long drive... He was referred to us by friends and we are very thankful for that.  We will definitely refer him to anyone who needs his expertise.  Please thank him again for us. " - Wanda and Russell