FHA LOANS
An FHA (Federal Housing Administration) loan is a loan insured against default by the FHA. In other words, the FHA guarantees that a lender won’t have to write off a loan if the borrower defaults – the FHA will pay. FHA loans are not for everybody. Nevertheless, they are a great help to some borrowers. FHA loans allow people to buy a home with a down payment as small as 3.5%. Other loans might not allow such a low down payment.
Who can get an FHA loan?
Almost anybody can get an FHA loan. There are no income limits. However, there are limits on how much you can borrow. In general, you’re limited to median home prices in your area. To find the limits in your region, visit HUD’s Website. To qualify for an FHA loan, you’ll need to have reasonable debt to income ratios. You don’t need perfect credit but you will need to have a credit score of at least 620
Advantages and Disadvantages of FHA Loans
FHA loans are often the best source of a mortgage for certain borrowers that are unable to obtain financing through private lenders. Thus, you may qualify for an FHA loan with a lower credit score and/or greater amounts of debt (and higher debt-to-income),
However, because FHA borrowers are often riskier, FHA loans usually come with somewhat higher interest rates and require the purchase of PMI. FHA loans can only be used for your primary residence and come with certain borrowing limits.
Benefits of FHA loans:
- 3.5% down payment required on purchase
- Easier to use gifts for down payment and closing costs
- No prepayment penalty
- Financing for home improvement using FHA 203k programs
Pros and Cons of FHA Loans
Pros
- Available to borrowers with lower credit scores
- Lower down payments
- Federally-backed
Cons
- Requires purchase of PMI and its ongoing premiums
- Cannot be used for second homes or investment properties
- Higher interest rates
- Not all properties qualify
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©2023 Align Financial, LLC NMLS #2320438 (www.nmlsconsumeraccess.org) 1792 Woodstock Rd Building 100 Roswell, GA 30075 (678) 916-7025. All rights reserved. Align Financial is an Equal Housing Opportunity Lender. This is not an offer to enter into an agreement. Information, rates, and programs are subject to change without prior notice and may not be available in all states. All products are subject to credit and property approval. Align Financial is not affiliated with any government agency.