An FHA loan is financing, which is federally backed by the United States government’s housing administration with approved lending institutions in the program offering individuals an easier chance to buy home. With FHA home loans, mortgage insurance allows lenders to be protected, if the homebuyer defaults on the loan. There is the possibility of qualifying for one of these loans, if your credit is not up to par and if you already have assumed debt or even bankruptcy. Your specific situation will be assessed in-depth.
Low Down Payment
Typically, the cost associated with buying a home is between three quarter percent to one percent less than it would be for conventional loans financed. This means that the buyer would need up to $2000 less as down payment to pay on a home with a price tag of $200,000. However, usually, the down payment is determined by your credit score.
Closing Costs
The closing costs for an FHA loan are also lower and are typically added to the loan amount. The closing costs, if you don’t already know, is a fee charged in the process of buying a home. It can include the appraisal fee, inspection fee and the loan processing fee along with the title documentation fee.
Assumed Loan
The obligations of an assumed loan can be transferred as long as the buyer is qualified. This can be down without seeking the lender’s permission. These loans are ideally sold during a low interest rate period and then when the interest rate increases. Only VA loans can be assumed. Conventional loans do not qualify.
FHA Loan Eligibility
To qualify for an FHA loan, you have to do business with a lender that handles guaranteed FHA loans. Be aware that lenders have their own standards, rates and terms. Therefore, it is critical to do comparison shopping. Like all loans, lenders offering FHA loans look at the risks and so they will assess income levels, credit history, debt-to-income ratio, and expenses. Other things are considered with an FHA Loan and that includes the use of the property, the units and if the borrower is going to live in the home. Therefore, if you are going to become a landlord and rent the home, you would not be eligible for an FHA loan.
The Limitations
It is important to note that if you take out an FHA loan, our loan amounts will be lower than a conventional loan. Fannie Mae and Freddie Mac loans have higher loan amounts than FHA loans. With an FHA loan, your options are limited. These loans are more conservative in order to put limitations on the lender’s loss. You also have to pay a 1.5 percent mortgage insurance premium with an FHA home loan.
Summary
If you are looking to buy a home and interested in an FHA home loan, you should first think about your personal finances, credit history and the benefits of getting this type of mortgage loan.
