If you’re a first-time homebuyer or have good credit, you might be wondering if an FHA loan is worth it. Well, if you qualify for it, it is a great loan to get, thanks to the various benefits it offers. However, it isn’t the only loan you can find in the market, so it is a must to thoroughly understand what the FHA loan is all about.
That said, Here’s what you need to know about FHA loans, including their benefits and drawbacks.
What Is an FHA Loan?
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration (FHA). The FHA is a U.S. government agency that provides mortgage insurance on loans made by FHA-approved lenders. FHA loans are popular with first-time home buyers because they require a lower down payment than a conventional mortgage.
FHA loans are available to all types of borrowers, not just first-time home buyers. In fact, you can use an FHA loan to purchase a duplex, triplex, or four-plex. You can also use an FHA loan to purchase a manufactured home or a condominium.
What Are the General Requirements of an FHA Loan?
To be eligible for an FHA loan, borrowers must meet the following requirements:
- -Have a valid Social Security number
- -Have a steady employment history (or be self-employed)
- -Have a valid driver’s license
- -Have a down payment of at least 3.5% of the purchase price of the home
- -Have a credit score of 580 or higher
If you meet all of the above requirements, you should be able to get an FHA loan.
What Are the Main Pros and Cons of an FHA Loan?
FHA loans are popular among first-time homebuyers and those with limited budgets or imperfect credit histories. However, they aren’t for everyone. Here are the pros and cons of FHA loans to help you decide if one is right for you.
Pros
- Low Down Payment and Lower Interest Rate. You can buy a home with as little as 3.5% down, which can come from a variety of sources, including gifts from family or employers. Also, FHA loans have lower interest rates, usually one-half percent lower than conventional loans.
- Flexible Credit Requirements. You can qualify for an FHA loan with a credit score as low as 500, which is much lower than the minimum credit score of 620 that’s typically required for conventional loans.
- Low Closing Costs. FHA loans allow sellers to pay up to 6% of the loan amount to cover your closing costs, which can save you money.
Cons
- Mortgage Insurance Premiums. You’ll be required to pay an upfront sum which is 1.75% of the loan amount in addition to a monthly mortgage insurance premium (MIP) with an FHA loan. The amount and duration of MIP depend on the size of your down payment, the length of your loan, and the initial loan-to-value ratio (LTV).
- Limited Home and Property Types. You may find it difficult to find an FHA-insured loan for a non-traditional property type, such as a fixer-upper or a manufactured home.
Your Mortgage Team at McGowan Mortgages
If you’re looking for a home loan, an FHA loan might be a good option for you. But make sure you understand the pros and cons before you apply. Remember, it isn’t for everyone, and while it may work for someone else, it may or may not work with you. That being said, if you are still wondering whether FHA is right for you, don’t be afraid to reach out to a mortgage expert. They can help you know your options and help you pick the best option in your case!
McGowan Mortgages is your go-to home loan expert dedicated to helping you buy your home smoothly and quickly. If you are looking for FHA loans in Kansas City or throughout Missouri, get in touch with us today at (816) 631-9687.
Do you know how much home you can afford?
Most people don’t... Find out in 10 minutes.
Today's Mortgage Rates
