What is a Connecticut FHA Loan?
A Connecticut FHA loan is a government insured home loan in the state of Connecticut. FHA loans work slightly differently for different states, mainly in what the maximum limit for the loans are (this is county by county). All FHA loans are insured by either the US Department of Housing and Development (HUD) or by the Federal Housing Administration (FHA). If the borrower defaults, then the federal government steps in and covers the loan. This insurance makes the risk lower for the lender, and this lower risk, in turn, translates to benefits for the borrower. These benefits typically include lower rates and lower credit requirements. Also, FHA loans have lower down payment then most conventional loans. The down payment can be as low as 3.5% and can even be paid for by family or friends. The lower credit requirements and lower more flexible down payments make FHA loans a good fit for many first time homeowners. The relatively low limits of FHA loans make them less useful for more expensive homes. Below, we at Online Loans have broken down the assorted information available across the web into a convenient need-to-know to make getting you FHA loan as simple as possible.
The requirements for FHA loans are lower than conventional home loans. However, there are some requirements are particular to FHA loans. To get an FHA loan, you need to be a legal US resident. Also, you need to be using your loan on your primary residence (purchasing, repairing, or refinancing). You must have held employment at the same workplace for two years. FHA loans have maxim limits which vary between types of homes and the counties those homes are in. In Connecticut, the highest limit is $1,156,650, for a four unit home in Fairfield County. The lowest limit is $294,515 for a one unit home in New London county. FHA loans do require a down payment, the size of this down payment is determined partially by your credit score. If your credit score is above 580, your down payment will be 3.5% of your loan. If you have a credit score below 580, your down payment will be 10%. FHA loans are rarely granted at all to borrowers with credit ratings below 500, but exceptions are sometimes made if the borrower has good credit over the last two years. Lenders often have higher credit requirements the FHA minimums. Debt to income ratios also plays a role in FHA loans. The borrower needs to have a mortgage payment expense to income ratio of less than 31%, which means the monthly payments they need to make on their FHA loan needs to be less than 31% of their income. The borrower also needs to have a total fixed payment to income ratio of 43% or less, meaning the sum of all their monthly debt repayment obligations needs to be less than 43% of their income.
Interest rates are usually lower for FHA loans than conventional home loans because FHA loans are insured by the government. This is offset slightly by a charge for additional insurance of .45% to .85%. FHA rates are always fixed, which means that once the repayment plan has been made the interest charged remains constant independent of whatever else happens in the economy.As FHA loans are not given out by the government, the rates vary from lender to lender. Typical APRs found in Connecticut range from 3.75% to 5.5%. Smaller loans tend to have higher APRs because the administrative costs are roughly the same for large and small loans, so they represent a large percentage of the loan. Shorter loans usually have lower rates, because there is a lower risk that the borrower's personal financial situation destabilizes in that time.