As more and more people look to take their first steps on the property ladder, it is important to understand your mortgage options. When discussing these home loans, FHA mortgages must be near the top of the list. An FHA mortgage is government-backed – insured by the Federal Housing Administration.
FHA loans tend to have fewer and more flexible rules and regulations than some other mortgage types. However, before deciding to buy your home with an FHA mortgage, there are some things that you must consider:
1) You must work with an FHA approved lender
Because the Federal Housing Administration will not lend you the funds directly, you will have to work through an approved lender to complete your mortgage. Be sure to shop around since these lenders will all have different rates and fees that are associated with the loan.
2) The minimum down payment amount is 3.5 percent
While a conventional mortgage may require a down payment of around 10 percent (or 20 percent if you want to avoid PMI), you will be able to obtain an FHA mortgage with as little as a 3.5 percent down payment. However, if you can afford to out more money down, you may want to consider doing so.
3) You will have to pay for FHA mortgage insurance
The Federal Housing Administration requires mortgage insurance on all mortgages that it backs. Your insurance payments will come in two forms. You will have to pay an upfront insurance premium of 1.75 percent as part of your closing costs (though you can roll this into your mortgage if you wish), and you will have to pay an annual insurance premium of between 0.45 – 1.05 percent depending on the terms and value of your loan.
4) Your credit score does not have to be perfect to qualify
The general wisdom when applying for a mortgage is that your credit score must be above 620. While this is true for a conventional mortgage, it is not the case for FHA loans. You can be approved for an FHA loan with a credit score as low as 500. However, it is worth noting that those with scores below 580 will have to make a down payment of at least 10 percent.
Though the type of mortgage that works best for you will depend heavily on your own personal circumstance, it is certainly worth taking a look at the FHA mortgage option. It truly can be an excellent choice for many new home buyers.
Once your FHA loan is pre-approved, it is time find your dream home or just contact Mona Koussa, a local broker.