A mortgage loan that is insured by the Federal Housing Administration is a FHA loan. While there are a number of loans out there offered to buyers, the FHA loan is one of the best loans to consider. What are the basics of a FHA loan?
Basics of a FHA Loan
As I mentioned a FHA loan is insured by the Federal Housing Administration. Their mission is to help buyers qualify for loans. Sometimes, this means recommending a Consumer Credit Counseling program when there’s past credit problems. The FHA protects the lender’s interests by requiring the borrower to pay for mortgage insurance. Keep in mind, the FHA doesn’t directly offer the loan. They guarantee home loans.
Advantages of a FHA Loan
FHA loans are popular with buyers, especially first-time buyers. Why? They have less stringent requirements than conventional mortgage loans and a 3.5% down payment depending on your credit score. Therefore, buyers who qualify are purchasing homes with lower down payments and lower credit scores than traditional loans.
There are a few more advantages worth mentioning. While the borrowers can use their savings, the down payment can also be gifted from a family member or a grant. Besides that, in some cases your closing costs may be covered. Additionally, there are also loan packages for borrowers who need cash for repairs.
Another advantage to sellers is that, much like a VA and USDA backed mortgage, a FHA loan is assumable. This is attractive to many buyers who will assume your mortgage with its terms. If your mortgage rate is lower than existing rates at the time, the buyer benefits from your lower interest rates. As you can imagine, this is a huge drawing card.
Disadvantages of a FHA Loan
Most will agree that the mortgage insurance required to secure the loan is a disadvantage. You can’t cancel the annual premium since June 2013. Additionally, you may have to pay higher interests rates than you would with a conventional loan.
Is a FHA Loan for You?
Of course, that depends on whether you qualify for a FHA loan. If you contact me, I can direct you to someone who can help you discuss your options.