This program is ideal for borrowers who live in expensive areas where traditional mortgage limits are not sufficient to purchase a home. FHA High Balance loans are available in participating states and counties, although there are higher interest rates associated with these loans.
The primary benefit of an FHA High Balance loan is that it provides borrowers with access to larger loan amounts, which may be necessary when purchasing a home in an area with high property values. Depending on where the borrower lives, the loan limit can be as high as $765,600. It also has more flexible credit requirements and allows borrowers to make a down payment of as low as 3.5% of the purchase price.
In addition, FHA High Balance loans have a simpler qualification process than traditional loans as they are backed by the Federal Housing Administration (FHA). This means that borrowers do not have to provide as much documentation as they would with other types of loans. As long as they meet the minimum requirements, they can get approved for the loan.
However, while these loans are generally easier to qualify for, they come with more expensive interest rates than traditional mortgages. The average rate for an FHA High Balance loan is currently around 4.25%, while conventional loans typically have an interest rate of about 3.8%. Additionally, borrowers must pay an upfront mortgage insurance premium (MIP) of 1.75%, as well as an annual MIP of 0.85%.
Ultimately, FHA High Balance loans can help borrowers purchase a home in an expensive area where they might not otherwise be able to do so. Such loans have more relaxed qualification criteria than traditional loans and they provide access to higher loan limits than would normally be available. While there are costlier interest rates associated with these loans, these costs can be mitigated by making a larger down payment or exploring other loan options.
This article was contributed on Sep 21, 2023
