Why FHA Loans May Be the Best Option for You
FHA loans are geared toward first-time homebuyers and those who don’t meet the necessary requirements for a conventional mortgage. These are government-backed mortgages, meaning the government has a financial interest in ensuring you don’t default on your loan.
This article will discuss FHA loans, who they’re meant for, and why an FHA loan may be a good option for you.
What is an FHA loan?
The Federal Housing Administration (FHA) loan program was created in 1934 by Franklin D. Roosevelt in an effort to stimulate the economy during the darkest days of the Great Depression. Today, FHA loans still deserve plenty of merit as being one of the best ways to finance a home as a first-time home buyer. These loans have low down payment and credit score requirements, making FHA loans also ideal for those with low or average credit.
Some additional benefits of FHA loans include:
● You may be able to finance your closing costs into the loan
● The seller may offer to pay your closing costs
● FHA loans are typically more lenient in allowing gift funds to be used for a down payment
● FHA has mortgage insurance that is more affordable than conventional loans
● FHA loans allow for higher debt-to-income ratios to qualify for the loan
● Interest rates for FHA loans may be lower than other loan programs
How to qualify for an FHA loan
Qualifying for an FHA loan is typically easier compared to conventional mortgages. One of the most important requirements is a minimum credit score of 580. It’s important to know that this is the minimum score, but to get a reasonable interest rate you’ll need a much higher score.
FHA loans also require you to make a down payment of at least 3.5 percent. This means you’ll only need to bring $8,750 as a down payment for a home that costs $250,000, making paying for a home with an FHA loan more affordable for many homeowners.
Disadvantages of FHA loans
While FHA loans may make homeownership possible for many Americans, some downsides may deter potential borrowers.
First, FHA loans are notorious for having mortgage insurance on all their loans. Mortgage insurance is a way for the Federal Housing Administration to safeguard themselves in case borrowers default on their loans. Collecting monthly mortgage premiums from their borrowers gives them enough cash to cover themselves when borrowers can’t pay their loans.
FHA loans also have an upfront mortgage insurance premium (UFMIP) that must be paid in addition to your normal closing costs. The UFMIP is 1.75% of the loan amount, or about $4,300 on a $250,000 loan.
Final thoughts
We believe that homeownership will start to become more accessible a the home prices are coming down and actually what the homes are worth. Be sure to call the Kim Holland Homes Team when looking to Sell My House in
Massapequa.
