FHA Loans are an affordable method of homeownership for many home buyers. FHA Loans are insured by the Federal Housing Administration (FHA). This federal backing was instituted to motivate lenders to extend mortgages to people with less than perfect credit and to encourage them to offer loans that have smaller down payment requirements and feasible interest rates. The FHA is currently the largest insurer of residential mortgages in the world, insuring more than 40 million mortgages since 1934.
Though FHA loans are backed by a federal agency (the FHA), they are fulfilled by private mortgage lenders, banks, and savings and loan associations. Because rates and loan terms themselves are not federally mandated and can differ according to each lender, you should feel empowered to investigate your options to find the ideal FHA loan for you and your family.
There are several key requirements that you will need to meet in order to qualify for an FHA Loan, including:
There are several benefits to consider when applying for FHA Loans, including:
Although local FHA lenders get to decide how closing costs and fees are distributed, they do have requirements for you as the borrower, regarding what your anticipated debt-to-income ratio will be once you sign a mortgage. There are two different ways to evaluate your debt-to-income ratio:
FHA Loans are a great fit for many homebuyers, yet for some they have disadvantages. Here is a short list of the pros and cons of FHA Loans so you can decide if it is the right choice for you.
The FHA requires you to pay two mortgage insurance premiums on your FHA loan. There is an upfront premium and an annual premium.
The upfront premium is 1.75 percent of your total loan amount - e.g. $3,500 on a $200,000 loan. This first premium is acquired by the borrower when they sign the loan and should be paid then or it can be added into the loan amount that is being financed. The second premium, or annual premium, is paid monthly. This premium will vary based on the terms of the loan, the amount of the loan, and the loan’s LTV, or loan-to-value ratio.
These additional FHA Loan products make getting an FHA loan more attractive as they allow you to customize your borrowing to make your home-owning experience exactly what you want.
Talk with a Mortgage Advisor to learn more about FHA Loan Products.
FHA Loans may not the best option for all homebuyers. For example, if your credit is good, a conventional loan could be more affordable. Since conventional loans are not federally-backed like FHA Loans, you might be able to save on interest and possibly receive other perks. You also could qualify for a higher loan amount, which may not be an option on an FHA Loan due to their limits.
Are you a Veteran of the United States military? If so, you may be able to get a VA Loan. A VA Loan is similar to an FHA Loan in the fact that it is also insured by the federal government (the Veteran Affairs department). The highlight of a VA loan, which is unlike an FHA loan, is that a VA loan does not require a down payment and it also eliminates the need for mortgage insurance premiums.