If you’re thinking of buying a home, you might have heard of FHA loans. But what are they and how do they work? Here are the top five things you need to know about FHA home loans.
1. FHA stands for Federal Housing Administration. The FHA is a government agency that insures mortgages for low- and moderate-income borrowers. This means that if you default on your loan, the FHA will pay the lender instead of you.
2. FHA loans have lower down payment and credit score requirements than conventional loans. You can qualify for an FHA loan with as little as 3.5% down and a credit score of 580 or higher. Conventional loans typically require at least 5% down and a credit score of 620 or higher.
3. FHA loans have lower interest rates and more flexible terms than conventional loans. Because the FHA guarantees the loan, lenders can offer you lower interest rates and more options for repayment. For example, you can choose a fixed-rate or adjustable-rate mortgage, or a 15-year or 30-year term.
4. FHA loans have some extra fees and limits that conventional loans don’t have. You’ll have to pay an upfront mortgage insurance premium (MIP) of 1.75% of the loan amount and an annual MIP of 0.85% of the loan balance. You’ll also have to abide by the FHA loan limits, which vary by county and depend on the cost of living in your area.
5. FHA loans are not just for first-time homebuyers. Anyone can apply for an FHA loan as long as they meet the eligibility criteria. However, you can only have one FHA loan at a time, and you can’t use it for investment or vacation properties.
FHA loans are a great option for many homebuyers who want to buy a home with a low down payment and a low credit score. However, they’re not for everyone, so make sure you compare them with other types of loans before you make a decision.
