What is an FHA Loan?
A Federal Housing Administration, (or FHA,) loan is a mortgage that is insured by the FHA in order to protect approved lenders should you experience difficulties affording the monthly payment. FHA home loans are very popular among first-time buyers as they allow for lower down payments. Typically you would need to find 3.5% of the purchase price if your credit score is 580+ or 10% if your credit score is between 500 and 579.
What else do I need to know about FHA Home Loans?
- You should be aware that, if approved for an FHA loan, you have to pay mortgage insurance premiums, which will protect the lender should you default on your payments.
- You also need to remember that the lower your credit score is, the higher the interest rate is likely to be.
- You will need to have a steady employment history or be able to prove that you have worked for the same employer for at least two years.
- You need a valid Social Security number.
- Be a lawful resident of the U.S.
- Old enough to be able to sign a mortgage in your state.
- You will only be able to apply for a new FHA loan for somewhere which will be your primary residence.
- You must obtain a property appraisal from a FHA-approved appraiser to prove that the home is worth the money you wish to borrow.
What are the benefits of FHA loans?
- FHA loans are easier to qualify for than a ‘standard’ mortgage, as a lower down payment is needed.
- Those who have either low or bad credit, or been in the unfortunate position of being foreclosed upon, or faced bankruptcy may still be able to qualify for an FHA loan.
Are there any down sides to an FHA Loan?
Because FHA Loans are not subject to the same stringent qualifying procedures as conventional mortgages, it is necessary to have 2 kinds of mortgage insurance premiums:
- Upfront mortgage insurance premium (UFMIP) – a ‘one-off’ upfront payment which may be added onto the amount of the mortgage.
- Annual MIP is actually charged as a monthly premium and will vary, dependent on length of loan and amount borrowed.
Questions? We can help. Contact us today.
The information provided herein has been prepared by a third party company and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. Each loan is subject to underwriter final approval. All information, loan programs, interest rates, terms and conditions are subject to change without notice. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.