If you’re a first-time buyer or looking to upgrade, FHA loans could be the perfect fit. These mortgages are insured by the Federal Housing Administration and offered through private, FHA-approved lenders such as banks, credit unions and nonbanks.
The Benefits of FHA Loans
An important benefit of an FHA loan is its low down payment requirement. With good credit and sufficient income, you could make a down payment as low as 3.5% on an approved conventional mortgage – providing great relief to many would-be homebuyers who struggle to save large sums of money for down payments on conventional mortgages. This makes the loan process simpler for those looking to purchase property but don’t have enough savings for large down payments.
An additional advantage of FHA loan rates is they’re lower than conventional mortgage rates, allowing you to pay less interest over the course of your home loan. This is particularly advantageous if you’re making a smaller down payment on either a new home or refinancing an existing one.
When considering an FHA loan, it’s essential to do your due diligence. Get quotes from several lenders by calling them, visiting them in person or checking online; this will give you a sense of their service and enable you to determine which lender best meets your needs.
More Paperwork
Applying for an FHA loan is more complex than applying for a conventional loan, as you must fill out additional forms that protect you from potential issues like appraisal issues, title defects and mortgage fraud. These extra steps add some time to the process but provide peace of mind at no additional cost in terms of fees or closing costs.
A Low Down Payment
In most cases, no down payment is necessary on an FHA-backed mortgage if your credit score is 580 or higher. However, some lenders have additional requirements and restrictions so it’s wise to check with them before committing to a specific home purchase.
Depending on your individual situation, you may qualify for an FHA loan even with a poor credit history or score. If your score has declined within the past year and you demonstrate that you’re working to repair it and making payments promptly, an FHA loan could be possible.
An FHA-backed mortgage can be used to purchase a variety of properties, such as single family homes, condominiums on permanent land, manufactured homes attached to foundations and multifamily houses with up to four units. In certain instances, you may even use it for financing a second home or investment property within the same county if it meets government safety and durability standards.
FHA loans may have some drawbacks, but they’re an ideal option for many borrowers. To fully understand the pros and cons of an FHA loan, speak with an experienced mortgage professional at Paddio Mortgages to determine if this type of financing fits your needs.