Should You Get An FHA Loan?

If you’re in the market for a new home, you may have come across the term “FHA loan.” FHA loans are designed to help make homeownership more accessible to people with lower credit scores, less income, smaller down payments, or first-time buyers.

Unlike other forms of financing, FHA loans are much easier to get. But is an FHA loan the right choice for you? Let’s take a closer look.

What Is An FHA Loan?

An FHA loan is a type of government-backed mortgage that is insured by the Federal Housing Administration (FHA). These loans are designed to help low- to moderate-income families obtain homeownership.

FHA loans are also popular with first-time homebuyers. The reason? FHA loans have less stringent credit and down payment requirements. In fact, to be eligible for an FHA purchase loan, borrowers need only a credit score of at least 500 and a down payment of at least 3.5%.

What Are The Types Of FHA Loans?

The term “FHA loan” is a blanket term used for loans that are insured by the Federal Housing Administration and typically refers to a purchase loan. However, there are several types of FHA loans available to borrowers that serve many different purposes, each of which has its own set of eligibility requirements and terms.

FHA Purchase Loans. This is the most common type of FHA loan. It is used to purchase a new home and can be used for single-family homes, manufactured homes, and even some condos.

FHA Refinance Loans. FHA refinance loans are used to refinance an existing mortgage into a new FHA loan. There are several types of refinance loans available, including FHA Streamline Refinance, FHA Cash-Out Refinance, and FHA Simple Refinance.

FHA 203(k) Rehabilitation Loans. These loans are used to finance the purchase and renovation of a home. They can be used to purchase a home that needs repairs or to refinance an existing mortgage and make updates to the home.

FHA Reverse Mortgages. These are loans designed for homeowners 62 and older who have equity in their homes. They allow borrowers to convert the equity in their homes into cash without having to sell their homes or make monthly mortgage payments.

FHA Title 1 Home Improvement Loans. These loans can be used to finance repairs and improvements to a home, such as a new roof or a remodeled kitchen. They can be used to purchase a new home or to refinance an existing mortgage and make updates to the home.

What Are The Benefits Of An FHA Loan?

Lower credit score requirement. FHA loans are often easier to qualify for than traditional mortgages because they have lower credit score requirements.

Smaller down payment. FHA loans also require a smaller down payment than traditional mortgages, which can make them more accessible to first-time homebuyers.

Flexible underwriting. FHA loans have more flexible underwriting guidelines than traditional mortgages, which can make it easier for borrowers with a less-than-perfect credit history to qualify.

Lower interest rates. FHA loans often have lower interest rates than traditional mortgages, which can save borrowers money over the life of the loan.

What Are The Drawbacks Of An FHA Loan?

Mortgage insurance. FHA loans require mortgage insurance, which is an additional cost for borrowers. This cost can be rolled into the loan, but it can make the monthly payments higher.

Maximum loan limit. FHA loans have a maximum loan limit, which varies by location. This means that borrowers may not be able to get an FHA loan if they want to purchase a more expensive home.

Upfront mortgage insurance premium. In addition to ongoing mortgage insurance, FHA loans also require an upfront mortgage insurance premium. This can add to the overall cost of the loan.

Limited sales price. FHA loans also have a limit to the sales price of the home, so if the price of the home exceeds the maximum for the area, the borrower won’t be able to use an FHA loan.

The Bottom Line

An FHA loan can be a great option for homebuyers with lower credit scores or smaller down payments. However, it’s important to weigh the benefits against the drawbacks and evaluate whether an FHA loan is the right choice for your unique situation.

This is where a higher credit score comes in handy. A good credit score opens up more financing options for you and gives you a better chance at getting favorable terms. Enter credit restoration, the process of removing negative information from your credit report.

Call us at 888-799-7267 to schedule a Free Credit Consultation.