Before you begin looking for a house to buy, you need to make sure you're qualified for a home loan. While there are several types of loans available, FHA loans have several benefits. So, before you start the home buying process, learn more about what an FHA loan is and how it can benefit you.
What is an FHA Loan?
An FHA loan is a home loan that is insured by the Federal Housing Administration. This protects the lender in event of foreclosure, and in turn, makes it easier for people to obtain home loans. While you don't have to be a first-time home buyer to qualify for an FHA loan, the loans are popular with first-time home buyers because they are easier to qualify for and require less of a down payment than conventional loans.
Down Payment
Conventional home loans often require borrowers to have a down payment equal to 20 percent of the home's purchase price. Unfortunately, for some -- especially first-time home buyers -- this isn't feasible. If you don't have a 20 percent down payment, you could still qualify for an FHA loan. With an FHA loan, you only need to put down a 3.5 percent down payment.
Credit Concerns
It's common for people with credit concerns to avoid exploring the idea of purchasing a home because they think that they will not qualify for a home loan. However, it isn't extremely difficult to qualify for an FHA loan. The minimum credit score needed for an FHA loan is 580. However, most lenders require borrowers to have a credit score between 620 and 640. If you have a credit score lower than 620, it could still be possible for you to purchase a home using an FHA loan. However, you should expect to pay between a five and 10 percent down payment.
Other FHA Loan Benefits
In addition to requiring a lower down payment and having easier approval terms, an FHA loan has several other benefits for buyers.
- Fixed interest rate that allows buyers to plan out payments in advance.
- Adjustable rate options give buyers a low monthly payment and curiosity rate.
- Loan terms allow the seller to pay all of the closing costs, up to six percent of the purchase price.
Even if you don't think that you'd qualify for a conventional home loan, you might be able to obtain an FHA loan. For more information, contact Mortgage Master Service Corporation or a similar company.
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