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Last updated on December 5th, 2022 at 10:05 pm
When you are planning to fulfill your American dream of owning a home and if your income is moderate, it’s worth looking into an FHA-backed mortgage loan.
The FHA loans only require a 3.5% down payment, and the interest rates offered are also lower compared to conventional loans.
But, there are restrictions and trade-offs to consider, here is some information to help you get to know more about FHA loan:
What is an FHA loan?
First-time homebuyers who might have difficulty qualifying for conventional loans can opt for Federal Housing Administration (FHA) backed mortgages.
One advantage being the low down payment requirements which are as low as 3.5% of the total mortgage, even with a credit score as low as 580 (however scores between 500 and 579 require a 10% down payment) you can qualify.
Even if you are a repeat buyer you can get an FHA loan, as long as you are using the home as your primary residence.
The FHA grantee these loans but don’t actually offer these loans directly, this reduces the risk to private lenders so they offer much more favorable repayment rates than you’d find outside the program.
The FHA loans have a wide assortment of choices, you can select variable or fixed interest rates and different term lengths.
Restrictions
The drawback of FHA loans is that they also carry more restrictions compared to a conventional private loan which are:
- The FHA loan limit in low-cost areas is $356,362 and inexpensive markets it is $822,375.
- After the mortgage closes the borrower must take possession of the home within 60 days, and for the majority of the year live in the home so you can’t flip a home with an FHA-backed mortgage.
- With a Conventional loan borrower only if the down payment is less than 20% of the loan they are required to pay for mandatory private mortgage insurance (PMI), but the FHA loan borrowers are required to pay mortgage insurance for all of their loans, no matter what their down payment is.
Reference Source: Life Hacker
