Understanding the FHA Loan's Benefits and Requirements
An FHA loan is a flexible type of loan for home buyers to discover when considering their loan options. Additionally, the FHA loan is often the preferred home loan for first-time home buyers. The following information will detail what home buyers should know before choosing an FHA loan.
What Is an FHA Loan?
An FHA loan is a loan that is backed by the Federal Housing Administration. FHA loans are very common, often among home buyers on a budget and first-time home buyers. Interested home buyers with a small down payment saved and who may not be able to afford a conventional loan often turn to the FHA loan.
Who Is Eligible for an FHA Loan?
Borrowers who are interested in applying for an FHA loan should have acceptable credit history and a down payment of at least 3.5%. This down payment amount is less than a conventional loan's amount, which generally requires home buyers to put down at least a 10% down payment and often 20%. However, some home buyers with low credit (a score less than 580) may still qualify for an FHA loan, but may be asked for a larger down payment.
Home buyers who are unsure whether they will be required to put down a higher amount can work with their lender, who can assess the home buyer's credit history and financial situation while coaching them on the best steps for acquiring a home loan.
Additionally, home buyers interested in an FHA loan should have a stable job history with enough income to make monthly mortgage payments. Home buyers cannot use an FHA loan to purchase a second home, as FHA loans can only be used to purchase the buyer's primary residence.
What Are the Advantages of FHA Loans Over Conventional Loans?
Many homeowners seek an FHA loan over a conventional loan for the benefit of a lower down payment. However, home buyers should factor the mortgage insurance premium, an insurance that FHA borrowers will need to pay, into their budget. The mortgage insurance premium may cost a few hundred extra dollars per month, depending on the cost of the home.
Conventional loans do not require a mortgage insurance premium to be purchased, unless home buyer is permitted to purchase a home with a less-than-20% down payment.
Finally, the FHA loan may require the condition of the home be "turn key," meaning the FHA loan will not be able to pay for a home with a major defect that could be a hazard or a code violation.
If you would like to purchase a house, working with a good real estate professional and lender can make the process of deciding which home and which loan is right for you easier. With many advantages and a common choice for many first-time home buyers, FHA loans can benefit those who are eligible.