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Buying a home can be a complicated and overwhelming process for many. And many continue to rent because they think they will not qualify for a home loan, or a mortgage. One option you need to consider is an FHA mortgage. This mortgage type is designed to help people with lower credit scores or those without a large down payment. Making home ownership possible for many. In this blog post, we’ll take a closer look at FHA mortgages and how they work.
What is an FHA mortgage?
FHA stands for Federal Housing Administration. The FHA is a government agency that insures mortgages issued by approved mortgage lenders. And an FHA mortgage is a home loan that is backed by the FHA. Being backed by the FHA means that if you default on the loan, the FHA will pay the lender a portion of the outstanding balance. Because of this, they are more likely to approve borrowers who may not meet the strict requirements of conventional mortgages.
What are the benefits of an FHA mortgage?
One of the main benefits of an FHA mortgage is that they have lower credit score requirements than traditional mortgages. Additionally, FHA mortgages also have lower down payment requirements than traditional mortgages. With an FHA loan, you can get a mortgage with as little as 3.5% down! This can be a significant advantage for people who don’t have a lot of money saved up for a down payment, or for those who want to use their savings for other investments.
What is FHA mortgage insurance?
One thing to keep in mind when considering an FHA mortgage is that you will be required to pay FHA mortgage insurance. This insurance is designed to protect the lender in case you default on the loan. And in most cases, you have to pay this mortgage insurance for the life the loan. FHA mortgage insurance also consists of two parts, an upfront premium and an annual premium. The upfront premium is typically financed into the loan amount, while the annual premium is paid in monthly installments.
How much does FHA mortgage insurance cost?
The cost of FHA mortgage insurance varies depending on the size of your down payment and the length of your loan. Generally, the upfront premium is 1.75% of the loan amount. The annual premium is between 0.45% and 1.05% of the loan amount, However, it can vary depending on the size of your down payment and the length of your loan.
How do you qualify for an FHA mortgage?
To qualify for an FHA mortgage, you will need to meet certain requirements. These requirements include:
- FICO® score at least 580 = 3.5% down payment.
- FICO® score between 500 and 579 = 10% down payment.
- Debt-to-Income Ratio < 43%.
- The home must be the borrower’s primary residence.
- Borrower must have steady income and proof of employment.
If you think you may qualify, the first person to reach out to is a mortgage lender who works with FHA. They can help advise you on how to apply, and discuss what other programs are available that also may be able to help your specific situation, such as down payment assistance programs.
Conclusion
If you are considering purchasing a home but are concerned about your credit score or ability to make a large down payment, an FHA mortgage may be a good option for you. With lower credit score requirements and lower down payment requirements than traditional mortgages, an FHA mortgage can make homeownership more accessible to a wider range of people.
To see if an FHA mortgage loan is right for you, you should first speak with a lender. They will typically give you education and advise you on your options with no cost or commitment. If you need assistance finding a great lender, let me know! I’d love to help. You may also want to check out my blog post on Choosing A Lender.
Reach out with any questions! I’d love to help