There are a lot of different loan programs out there for home buyers.  Each loan program has different qualifications, pros, and cons to it.  It is important as a first time home buyer to do your research after talking with a mortgage lender to determine what loan is right for you.  Let’s look at the basics of an FHA loan today!

What is an FHA loan?

Unlike a conventional loan, an FHA loan is a government backed loan.  These loans are insured which means that if the borrowers default on the loan the mortgage company who owns the loan is protected from a loss.

If a buyer secures an FHA loan, the buyer can borrow 96.5 percent of the home’s value with a credit score of 580 or higher.  For borrowers whose credit score is between 500-579 can still get a FHA loan with a ten percent down payment.  

What are the qualifications for an FHA loan?

There are several requirements that must be fulfilled in order to acquire an FHA loan.

  • The home must be the primary residence. This means that you cannot use an FHA loan to purchase a second home or a rental property.
  • It must be appraised by an FHA approved appraiser. An appraisal assesses the current market value of a home and determines how much money a bank is able to loan the buyer for the home.
  • There must be a home inspection. A home inspection takes a closer look at the condition of the home.

What is my down payment for an FHA loan?

This depends on your credit score.  If you have a credit score of 580 or higher, the down payment is 3.5 percent of the cost of the home.   If you have a score of 500-579, then you must put down ten percent.

Do I have to pay private mortgage insurance with an FHA loan?

Yes!  PMI lasts for the life of the loan or for eleven years depending on your specific loan to value ratio. Private mortgage insurance is a common practice for mortgages that have less than a twenty percent down payment. You can check with your mortgage lender to get the specifics of how much you will pay each month in PMI. It is rolled into part of your mortgage payment.

Why get an FHA loan?

FHA loans are appealing to buyers who have lower credit scores and don’t qualify for conventional loans.  They tend to have competitive interest rates too. These factors make an FHA loan a popular loan option for many buyers. 

As with anything financial, the best way to determine if an FHA loan is right for you is to talk with a mortgage lender.  The lender can share any changes made in the FHA’s qualifications, share methods for buyers to up their credit scores, and present other loan programs to consider as well.