The Federal Housing Administration (FHA) is an organization that backs FHA loans. The backing the FHA offers reduces the risk lenders assume when issuing these loans to people, but is an FHA mortgage right for you? Well, the answer to this depends on several things. Here are three essential things to know about these loan types before you apply for one.
They Offer a Way to Buy a House Without a Huge Down Payment
One of the reasons people prefer FHA loans over other types is for the minimum down payment requirements. Many people can buy homes with FHA loans without putting large deposits down. The standard rule for the down payment amount is 3.5% of the purchase price of a home. If you compare this percentage to other mortgage types, you'll find that this is lower than the required rates for different types.
You may have the choice of a 15-year or 30-year mortgage. If you choose the shorter one, you may pay a lower interest rate, but this depends on the lender and on other factors.
There Is a Mandatory Fee for the Lifetime of the Loan
When you have an organization backing the loan you get, there is usually a fee that you must pay. For an FHA loan, you will have to pay a fee for the lifetime of the loan. This fee is called private mortgage insurance. The insurance costs are based on a percentage of your loan amount, and your lender will include the costs in your mortgage payment. You will know what your payment amount will be before you get the loan, and this is helpful for budgeting. You will pay this required fee for as long as you have the mortgage.
They Do Not Require Perfect Credit Scores
The credit score requirements set by the FHA state that you can qualify for a loan if your score is 580 or higher. The FHA also allows them for people with lower scores, but they require higher down payments in these situations.
You should know that lenders that offer these loans are free to set their own credit score requirements. Because of this, many lenders require higher scores than 580 for applicants.
If you have questions about FHA loans or other types of mortgages, contact a company that offers home mortgage services. They can help you determine the best option for your financial situation.
To learn more about getting a home mortgage, reach out to a loan company near you.