Best Mortgage Loans: The FHA Home Loan

texas fha loanPurchasing your first home is arguably the most significant investment and the most important financial decision of your life. Many families have long wished to have a house of their own, but for many American households, the dream is yet to be fulfilled as the real estate and home mortgage markets are a challenge for anybody with less than the required credit standing and financial resources.

One of the biggest factors that get in the way of people having homes of their own is the high down payment demand of most conventional loans. Not many households can easily shell out six-figure amounts for the 20% required deposit by most conventional loans.

But what if there is a way for you to buy a home with less than a quarter of that amount? Yeah, that’s right. There is a mortgage loan program that only demands for at least 3.5% of whatever the purchase price of your desired property is: the FHA mortgage.

FHA Loans: What is it?

The FHA Home Loan has been around since for more than eight decades now. In 1934, the government launched the program to aide the lagging U.S. housing market. Nowadays, it has become a popular home loan option for first-time homebuyers and average-income households.

 

Benefits of the Program

Through the support and guarantee of the of the U.S. Department of Housing and Urban Development and one of its agencies, the Federal Housing Administration (FHA), the similarly-named mortgage program extends a more accessible mortgage option to families and individuals. With the 3.5% down payment rate and lower qualification guidelines, the FHA loan has paved the way for many Americans in their homeownership journey.

Another big issue that many people tackle when applying for mortgage loans is the credit score. Conventional loans are known for only considering applicants with FICO scores no less than 680. Many families struggle with reaching that minimum. It is also the reason why individuals who are just starting to build their credit portfolio have a hard time qualifying for the loan.

If a low credit score is one of your main concerns, then the FHA loan is an ideal option. The program only requires of its applicants a FICO score of 580, which is relatively lower than that of its conventional counterpart. Of course, the FHA mortgage has a list of requirements and qualification guidelines apart from the down payment and credit score. A more comprehensive list is available through the FHA website or getting by in touch with an FHA-approved lender.

 

The Downside

Up to this point, the FHA loans seem too good to be true. Indeed, it’s affordability makes it very appealing to hopeful homeowners. Not to discourage anybody who’s already eyeing the loan as the most viable out there, but the FHA loan program does have its downside, the biggest of which is the hefty insurance obligation.

While most loans with less than 20% down payment are accompanied with mortgage insurance, FHA loans come with two mortgage insurance premiums (MIP): an upfront mortgage insurance premium (UFMIP) and an annual MIP.

That said, the decision of whether to avail of an FHA loan or wait a few more years to save up for a conventional loan and build a better credit reputation needs ample thought.

by jkyle