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An FHA Mortgage Loan is a popular program for many Maine First-Time Homebuyers due to the low down-payment requirements and easy credit score guidelines.

The following list details the top five items Maine homebuyers should know about getting a mortgage insured under the FHA loan program:

1. Less-than-perfect credit is OK

The FHA doesn’t mandate a minimum credit score. Each borrower’s creditworthiness is considered in context. Some leeway is allowed, even for borrowers who’ve filed for bankruptcy.

That said, however, lenders can overlay their own requirements (most require a 640 Minimum FICO score) on top of the FHA’s guidelines. Ask prospective lenders about such a requirement if your credit is less than perfect.

2. Minimum down payment is 3.5 percent

The FHA requires a down payment of just 3.5 percent of the purchase price of the home. That’s a fraction of the percentage typically required on most other loans and should be a huge attraction to first time home buyer.

Borrowers can use their own savings to make the down payment or other sources of cash include a gift from a family member, or a grant from a state or local government down payment assistance program.

3. Closing costs may be covered

The FHA allows home sellers, builders and lenders to pay some of the borrower’s closing costs, such as an appraisal, credit report or title expenses. For example, a builder might offer to pay closing costs as an inducement for the borrower to buy a new home.

Lenders typically charge a higher interest rate on the loan if they agree to pay closing costs. Borrowers can use the good faith estimate of closing costs — commonly known as the GFE — to compare interest rates and closing costs on different loans and figure out which option makes the most sense.

4. Lender must be FHA-approved

Because the FHA is not a lender, but rather an insurance fund, borrowers need to get their loan through an FHA-approved lender (as opposed to directly from the FHA). Not all FHA-approved lenders offer the same interest rate and costs — even on the same FHA loan. Shopping around can benefit you.

5. Mortgage insurance is a must

Two mortgage insurance premiums (MIP) are required on all FHA loans: The upfront premium is 1.0 percent of the loan amount, and the annual premium is 0.90 percent of the loan amount. The upfront premium must be paid when the borrower gets the loan but can be financed as part of the loan amount. The annual premium is paid in chunks of 1/12th of the total along with each month’s mortgage payment.

Many borrowers feel the FHA loan may be more expensive. However, borrowers need to compare the FHA-insured loan to a loan that’s not FHA-insured (and consequently requires a much larger down payment). In many cases, the FHA loan is still the best choice.

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