FHA HOME LOANS
A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.
In 2021, you can borrow up to 96.5% of the value of a home with an FHA loan. This means you'll need to make a down payment of 3.5%. You'll need a credit score of at least 580 to qualify. If your credit score falls between 500 and 579, you can still get an FHA loan as long as you can make a 10% down payment.? With FHA loans, your down payment can come from savings, a financial gift from a family member, or a grant for down-payment assistance.
Because of their many benefits, FHA loans are popular with first-time homebuyers.
KEY POINTS OF AN FHA LOAN
In order to secure the guarantee of the FHA, borrowers that qualify for an FHA loan are also required to purchase mortgage insurance, and premium payments are made to FHA. Your lender bears less risk because the FHA will pay a claim to the lender if you default on the loan.
While an FHA loan may sound great, it's not for everybody. It won't help those with credit scores less than 500. For those with bad credit, a personal loan may be a better option to consider. On the opposite end, aspiring homeowners who can afford a large down payment may be better off going with a conventional mortgage. It's more likely that they'll be able to save more money in the long run through the lower interest rates and mortgage insurance premium that conventional lenders provide.
FHA loans were not created to help potential homeowners who are shopping on the higher end of the price spectrum. Rather, the FHA loan program was created to support low- and moderate-income home buyers, particularly those with limited cash saved for a down payment.
When you buy a home, you may be responsible for additional out-of-pocket expenses, such as loan origination fees, attorney fees, and appraisal costs. One of the advantages of an FHA mortgage is that the seller, home builder, or lender may pay some of these closing costs on your behalf. If the seller is having a hard time finding a buyer, it's possible they might offer to help you out at the closing as a way of incentivizing the deal.