A Short Guide to FHA Loans


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One of the most stressful parts of buying a new home is figuring out how you’re going to be able to afford it. The good news is that average mortgage loan rates have been steadily falling over the last year, but the bad news is that there are a lot of different types of mortgage loans to choose from. One type of mortgage is an FHA loan. Here is what you need to know.

FHA Loans
FHA stands for Federal Housing Administration, which is an entity of the federal government which was created in the 1930’s to help create standards for construction and underwriting. The agency also backs home loans, which are referred to as FHA loans. The FHA basically offers the lender a guaranty in the event that the borrower defaults on the loans. These types of loans are more popular for first-time home buyers.

The Advantages
The advantage of FHA loans is that they are pretty easy to get. Since the FHA offers lenders a guaranty in case the borrower defaults on the loan, lenders are more likely to lend to people who don’t have great credit scores or the typical 20% down payment that are usually necessary for getting a mortgage loan. There is a down payment required, but it’s only 3.5%. Additionally, FHA loans have pretty attractive home mortgage interest rates. If the owner of the home decided to sell, another advantage of this type of loan is that it is a assumable, which means that the new owner of the home can simply take over the loan.

The Disadvantages
An FHA loan may be the right choice for a first-time home buyer with little money to put down and a bad credit score, but there is one big caveat here. There are two insurance premiums associated with FHA loans. One of these is an Annual mortgage insurance premium, which is charged monthly. The other, an Upfront mortgage insurance premium which all borrowers have to pay regardless of down payment and credit score.

Do you have any questions about FHA loans or how to find a bank that offers them? Feel free to ask us in the comments section. Reference links.

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