If you’re in the market to buy a home, you’ll likely be taking out a home loan to cover a substantial portion of your purchase. As you explore your mortgage options, you’ll find that there are many different types of home loans from which to choose. From conventional loans to government-insured options and everything in between, it can be overwhelming to research these different options and determine which is best for you.
For many homebuyers, however, a Federal Housing Administration (FHA) loan is a solid choice.
FHA Loans in a Nutshell
Specifically, an FHA loan is a type of government-backed mortgage that’s insured by the United States Federal Housing Administration. Although these loans are backed by the government, they’re issued by many private lenders (including banks and credit unions). The most telling characteristics of an FHA loan include a low down payment requirement (as little as 3.5%) and minimum qualification requirements.
Signs an FHA Loan May Be Right For You
Is an FHA loan right for you? The best way to determine this is to meet with a financial advisor, who will be able to make a specific recommendation based on your needs and financial situation. In the meantime, however, there are a few signs that an FHA loan may work well for you.
You Don’t Want to Make a Large Down Payment
One of the biggest draws of an FHA loan for many is the ability to make a small down payment–as little as 3.5% in most cases. The one exception to this is for applicants who have a credit score below 580; in this situation, a down payment of up to 10% may be required by the lender. Either way, this is a great option for those who don’t want to (or aren’t able to) make the 20% down payment typically required with a conventional home loan.
You’re Purchasing a Primary Residence
Another important requirement of an FHA loan is that you must be purchasing a primary residence; this means you’re buying the home that you plan on living in for the majority of the year. An FHA loan is not for you if you’re looking to buy a vacation home or a home you’ll be flipping for a profit (but not living in).
You Have Less-Than-Perfect Credit
Qualifying for an FHA loan is relatively easy, as the credit score requirements are pretty forgiving. Even with a credit score of 500, it is possible to get approved for an FHA loan if you have documented proof of stable income. From a credit standpoint, the FHA loan is perhaps the easiest type of home loan to qualify for.
You’re Looking For a Low-Interest Rate
FHA loans generally have low-interest rates, so they’re a great option for those looking to minimize their monthly payments. It is important to realize, however, that mortgage insurance will need to be paid on an FHA loan until at least 20% of the balance is paid off. This can add a bit to your monthly payment, but once you’re able to drop your mortgage insurance, you can begin reaping all the benefits of those low-interest rates. FHA interest rates are locked in as well, so you’ll never have to worry about your rate increases when there are changes in the market.
FHA loans are a popular option, especially among first-time home buyers. However, they’re not just for first-time buyers; they can be used over and over again for subsequent home purchases. If you’re planning on buying a home in the near future, be sure to consider this as an option for you.
Are You Ready to Get Started?
Get in touch with a local Mortgage Loan Originator by filling out a pre-qualification application or calling us toll-free at 877-255-3554.