Before answering the question “Do I need a mortgage broker with a FHA loan”, let us explain the basics of FHA loans. FHA loans are loans insured by Federal Housing Administration. People with poor credit history, insufficient funds for a down payment and other borrowers, have trouble getting traditional loans turn to FHA loans. Borrowers getting FHA loans are required to pay for mortgage insurance so the lender will be protected from a loss in case the borrower defaults on the loan. This insurance is the reason why FHA loans are offered at pretty favorable interest rates and looser qualification requirements. FHA makes sure the loans are provided by approved lenders and protected (by insurance) from loss caused by a borrower’s default on the loan.
HUD (the Department of Housing and Urban Development) monitors FHA insurance programs. These programs can be applicable to various types of properties. The Section 203(b) is the most extensively used program insures town homes, condos, one-to-four unit apartments, manufactured homes and newly constructed homes. A borrower has to apply and get the loan with help of an approved loan originator.
Who Are FHA Lenders?
FHA lenders such as credit unions, banks, mortgage lending companies, federally chartered and state chartered loan and saving institutions and government housing agencies are approved by FHA. After funding the loan, the lender sends it to FHA for insurance endorsement. Mortgage lenders usually charge higher rate if they offer to pay closing expenses (such as title or credit report costs). Comparing loan estimates from different lenders can help you decide what is the best option. FHA-approved lenders offer different interest rates with different expenses (even if it is the same FHA loan). Mortgage brokers Melbourne have relationship with FHA-approved lenders, and hiring one of them could make the process much easier.
Mortgage brokers intermediate between borrowers and lenders. Also, there are direct lenders who offer only one lending source, unlike mortgage brokers who provide selection of lending sources the borrower can choose from. A mortgage broker is not required to access FHA lenders open to public (banks). However, in order to access mortgage-lending companies which are not open to public, a mortgage broker is necessary. These are wholesale lenders with investors who provide the funds for the loans. In order to work with FHA-approved wholesale lender, a mortgage banker must have FHA approval.
Federal Reserve Board and the Department of Housing and Urban Development suggest that the borrowers compare loans offered by different lenders. Also, instead of applying for a loan with two or more lenders, a mortgage broker Melbourne can apply on your behalf and shop for the mortgage for you, because applying for a loan with several lenders can be pretty expensive and stressful. In addition, the Federal Reserve Board suggest the borrowers to consult several mortgage brokers Melbourne to make sure to get the best deal.
Insurance Premiums on FHA Loans
There are two mortgage insurance premiums on FHA Loans; the upfront premium and annual premium. Upfront premium accounts for 1.75% of the loan amount, and annual premium is paid monthly and it depends on the amount, the length of the loan and LTV (loan-to-value-ratio), etc. – your mortgage broker will explain all the details regarding the annual premium, once your loan gets approved.