You may have heard of an FHA loan, and you probably weren’t sure if you were eligible for one. FHA loans are insured by the Federal Housing Administration which is a part of the United States Department of Housing and Urban Development.
If you have an FHA loan, it includes special mortgage insurance which helps to protect lenders from a loss should the loan be defaulted on.
Why An FHA Loan?
Due to the extra insurance lenders can offer these loans at an lower interest rates. These loans are also easier to qualify for. This makes affordable housing more accessible.
Things To Know About FHA Loans
The minimum credit score depends upon the type of loan that you need.
If you have a credit score of 580 or higher, you can provide a down payment as little as 3.5% with an FHA loan.
If your credit score is lower than 580, you are required to make a down payment of at least 10%.
If your score is lower than 500, you may be ineligible for an FHA loan all together.
FHA loans require a low down payment, which is why it is so enticing to buyers. While these types of loans may have limited availability, it’s good to do your research and see if you’re eligible.
Securing The Down Payment
Generally, buyers use their own savings to make a down payment on a home. Some states have government assistance programs that provide grants to be used for a down payment on a home.
Incentives With FHA Loans
The Federal Housing Administration has special provisions to allow sellers, builders and lenders to pay for some of the other costs incurred while buying a home including the closing costs, appraisal, credit report, or title expenses. This allows builders and sellers to provide incentives to entice buyers. This could have an effect on the interest rates associated with the loan if the lender agrees to pay these costs. Buyers can compare rates with different lenders for these purposes.
Mortgage Insurance And FHA Approved Lenders
The Federal Housing Administration is a provider of insurance and not a lender. You must be sure that you go with an FHA approved lender in order to get your loan in check. This is where it’s important to shop around for benefits, loan standards and rates.
The re are 2 required insurance premiums for FHA loans. The upfront premium is about 1.75% of the loan amount. This is paid at the time the loan is secured and can be financed as part of the loan amount. The second premium is the annual premium which is paid monthly and varies based on factors such as the length of the loan.
As you can see there’s many benefits for home buyers who need additional mortgage insurance and assistance in buying a home. Talk to your lender about how you can secure an FHA loan today and make buying a home a reality.
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