Bank on It: FHA Loans
Finding the right home to fit all your needs and desires can take some time, but we’ve got some great information to ensure that finding the right home is a breeze! Whether you’re a first-time Homebuyer, someone whose credit score is less-than-perfect or someone without much established credit, an FHA loan could be ideal for you.
FHA loans are mortgages backed by the Federal Housing Administration (FHA) and are offered through FHA-approved lenders. With the FHA mortgage insurance protecting their loans, these lenders are able to accept lower down payment amounts and approve financing for buyers whose credit history may not meet other loan requirements. And, there are many down payment assistance programs that pair with FHA loans to help buyers make homeownership a reality!
Advantages of FHA Loans:
- Low down payment requirement of just 3.5% for buyers with a credit score of 580 or higher, and 10% down for a score between 500 and 579
- Easier approval than conventional loans with lower credit score requirements and a higher allowance for debt-to-income ratio
- FHA loans can be refinanced as another FHA loan or as a conventional loan
Drawbacks of FHA Loans:
- No matter your down payment amount, FHA loans require mortgage insurance in two parts: a one-time mortgage insurance premium equal to 1.75% of the loan amount (paid at closing or rolled into your loan payment) and an annual premium, paid monthly, for the life of the loan
- Your mortgage insurance premium is for the entire life of the loan, unless you refinance (which could lock you into a higher rate), or if you put down at least 10% and have paid on the loan for 11 years
- To qualify for an FHA loan, homes must meet strict safety and livability guidelines (no fixer-uppers or certain types of foreclosures) and the home being financed must be owner-occupied (sorry, no rentals or vacation homes either!)
If you’ve reached the financing stage of your home buying journey, now is a great time to talk through your options with a lender to decide if FHA loans are a good fit for you!