Are FHA Loans Right for You?
Does it seem like you’ll never be able to achieve homeownership? Don’t give up hope. The Federal Housing Administration (FHA) Loan Program is designed to assist homebuyers with low down payments and affordable closing costs. It is a government-backed loan program implemented by the U.S. Department of Housing and Urban Development (HUD). HUD insures loans in urban and rural areas for owner-occupied single family homes, excluding investment properties.
FHA loans are highly popular among first-time homebuyers because these loans sometimes end up being the most accessible option for people who may not be able to save for a large down payment and/or closing cost. This loan is also ideal for borrowers who have a low credit rating (subject to FHA guidelines*) and/or a high debt-to-income ratio.
Speaking of debt-to-income ratio, FHA Loans don’t require you to have amazing credit scores. With this loan, you can make a 3.5% down payment with a 580 credit score. You also may qualify with credit that ranges from 500-579 with a 10% down payment. Closing costs end up being less expensive than other loans because the FHA allows sellers, builders, and lenders to pay up to 6% of closing costs. Gift funds are also able to cover some of the various closing costs (subject to FHA guidelines).
Once you decide to go with the FHA Loan, you are required to get two types of mortgage insurance premiums. One is an upfront mortgage insurance premium which is 1.75% of the home loan or it can be financed into the mortgage. The second mortgage insurance premium is the annual premium which is paid monthly. FHA mortgage insurance premiums are essential to the overall mortgage industry’s health and make it possible for mortgage loans to stay available to prospective homebuyers.
Overall, the benefits of FHA Loans such as low down payments, lenient credit score requirements, and streamlined refinancing make this loan type a contender when it comes to choosing a mortgage loan. If you are interested in buying a home and meet the FHA’s qualifications, you may be eligible for the FHA Loan.
Contact our loan office closest to you for more information regarding the mortgage process!