The FHA Mortgage Loan

The FHA Mortgage Loan

texas fha loanPeople who are searching for affordable mortgage options often come across the words “FHA Loan.” The FHA mortgage is widely known as the first-time home buyer’s loan of choice, but despite the name it has made for itself in the mortgage industry, few people know what it is really all about and what it entails.

The FHA Home Loan Program

The first thing that you have to know about the FHA home loan is that it is a government-guaranteed mortgage program. It runs under the sponsorship of the FHA and the U.S Department of Housing and Urban Development. It was created to boost the housing market across the United States by providing more accessible mortgage opportunities to the average American families.

Like most home loans, it is mortgage lenders and not the FHA that make out the loans. The role of the FHA is limited to guaranteeing the loans and protecting the lenders against borrowers who default on their payments. It is this government insurance that encourages FHA-approved mortgage institutions to offer affordable loans with less stringent qualifying standards.

Advantages and Disadvantages of The Loan

The loan became popular among people with lower financial means, as it requires no minimum income from its applicants; only a proof of stable employment for a span of at least two years with the same company.

Moreover, the FHA has a lower qualifying credit score than conventional loans. Where conventional loans require a FICO score of 680, the FHA accommodates applicants with as little as 580.

Another upside of the FHA home loan is its 3.5% down payment rate. This is a far more budget-friendly than the 20% demand of many conventional mortgages. Many American households may find it hard to come up with a $60,000 deposit for a $300,000-home under traditional loan options. With the FHA loan, they’ll only need to shell out $10,500 for the same property.

Despite its many alluring features, the FHA loan comes with downsides that require a bit more pondering on the borrower’s part.

Because of it’s very low down payment and other financial solvency issues, the FHA loan comes with two mortgage insurance premiums: an upfront MIP and an annual MIP, divided into 12 monthly payments. As the name suggests, the first insurance is paid outright. The other is billed every month until the entirety of the loan is repaid. Apart from the insurance, however, there are not other very notable downsides to the loan.

Should you go for it?

The FHA loan is an ideal alternative for families and individuals whose financial situations and credit ratings disqualify them for a conventional mortgage. It is, however, not the only federally insured loan in existence. The USDA loan and the VA loan are other viable and affordable government-backed housing programs. These two, however, are exclusive to specific demographics. The VA loan only qualifies veterans, military service personnel, and their spouses. The USDA loan, on the other hand, abides by a strict income limit and is only available in select areas.

Whether the loan is right for you is something that only you can decide. Weigh the advantages and disadvantages of the program, and see how it fares with your goals and finances. Like most important things in life, this is a decision that shouldn’t be rushed nor taken lightly.

by jkyle