Everything You Need to Know About FHA Loans
There is no better investment for yourself and your family than having your own home. Unfortunately, not everyone has the money to purchase one up front. Fortunately, a government-backed FHA loan program might be just the thing to help you out. As with all loans, the key to maximizing its benefits is to understand what it has to offer.
What Is It?
This loan doesn’t differ much from other loans at its core. The FHA loan is applied for and issued by a private lender. What sets it apart is that the Federal Housing Authority insures it. That means that the US government acts as a guarantor to lenders. Should you fail to pay back the loan, it’s the FHA who’s going to repay the loan on your behalf. This encourages lenders to allow more substantial loans even in cases where they’d generally think twice.
What Are The Benefits?
The biggest advantage of this type of loan is the meager initial down payment. In some cases, you can drop as little as 3.5 percent of the total price of the property that you’re interested in. Additionally, you don’t need to have a high credit score on the offset, making it perfect for first-time buyers. Lastly, even if you’ve experienced bankruptcy and other things that generally hinder you from getting a traditional loan, you can still qualify for the FHA loan program.
What You Need to Know
A caution though is that the lower down payment means that your monthly interest rate is likely going to be higher than normal to compensate. Additionally, you have to pay a monthly insurance premium and an upfront premium that may add to the cost of the mortgage. Finally, with FHA loans, the insurance premium payment continues even when you’ve met equity in the home.
These types of loans are geared towards helping those who can’t otherwise afford a home to get one. It also empowers lenders to be more flexible in their requirements with little to no risk on their end. The key is being smart about approaching this type of loan.