FHA Loans: Benefits, Requirements, Pros And Cons

FHA Loans: Benefits, Requirements, Pros And Cons

 

Do you plan on a home purchase this year? Then you’re making an excellent choice! Owning a house is one long-term investment whether or not you choose to stay on it for a while or even if you plan on selling it after a few years.

But how can you buy one if you lack the funds to do so? You can purchase a home even with a tight budget by applying for an FHA Loan.

Defining FHA Mortgage

An FHA mortgage is popular among first-time homebuyers who need help in financing a home purchase. Low to moderate income individuals and those with poor credit scores can apply for an FHA Loan, provided they can supply the requirements. The Federal Housing Administration insures the FHA Loan offered by the different FHA-approved lenders.

Requirements for an FHA Mortgage

Various Lenders have different FHA loan Texas requirements for their borrowers. Some would consider FICO for as low as 500, while some needs 620 or 640 middle credit score. The usual minimum down payment is at 3.5%.

Proof of employment plus a steady flow of income is essential when applying for a mortgage. Salary-based buyers will find it easy to provide the requirements while self-employed homebuyers will need to provide at least two years of their tax returns for a lender to calculate their earnings accurately. You’ll also need to provide proof that you have enough money saved up after you pay for the required down payment plus other documentation. Applying for any home loan can be tricky, time-consuming and confusing, so it’s best to work with a mortgage broker to save precious resources and find the best deals available.

Benefits of an FHA Mortgage

Compared to conventional loan types, FHA Loans have far more affordable fees like better interest rates. They are easy to qualify for and offer better home stability. One can enjoy a lower down payment cost of 3.5%, lower mortgage rates, and lower credit score requirements when approved. Another advantage is that such loans are assumable which means a homebuyer can assume the loan for a specified balance amount to acquire an existing FHA Loan.

Good Read: Do’s and Don’ts of Improving Your Credit Scores

Downsides of FHA loans

Like every type of loans, FHA loans also has its disadvantages. Some of the potential drawbacks of FHA loans are limited loan choices, lower loan ceiling, lack of good credit rewards and the need to pay for higher mortgage insurance. Since your down payment is lower than 20%, you’ll actually need to pay for two mortgage insurances. One is the upfront mortgage insurance premium, and the other is an annual premium. These two gives protection to the lender in case you fail to pay for your loan.

Conclusion

Every mortgage type has its pros and cons. If you’re looking for an easy way to finance your home that also offers a number of benefits, then you should consider applying for an FHA Loan. Talk to a competent Mortgage broker, explore your options, and you’ll be able to check if an FHA Loan is an ideal choice for you.

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