Types of FHA Loans You Need to Know About
If you’re a first-time homebuyer, you may be wondering what kind of loan is best for you. There are many different types of home loans available, and each has its own set of pros and cons. In this blog post, we’ll focus on FHA loans. Keep reading to learn more about this type of loan and see if it’s right for you!
What Is an FHA Loan?
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). The FHA is a division of the Department of Housing and Urban Development (HUD). HUD insures lenders against some or all of the losses that happen when a borrower defaults on their mortgage loan. This encourages lenders to make loans to borrowers they might not otherwise lend to.
FHA loans are available to all kinds of borrowers, not just first-time buyers. And there are no income limits! You can even get an FHA loan if you have had bankruptcy or foreclosure in the recent past.
Benefits of an FHA Loan
There are several benefits to getting an FHA loan:
– Low credit score requirements: You can qualify for an FHA loan with a credit score as low as 580. And if your credit score is between 500 and 579, you can still qualify for an FHA loan as long as you have at least 10% equity in your home.
– Low down payment requirements: With an FHA loan, you can put down as little as 3.5%.
– Easy qualifying guidelines: As we mentioned before, there are no income limits with an FHA loan!
– More lenient than conventional loans: If you have had a bankruptcy or foreclosure in your recent past, it’s still possible to qualify for an FHA loan.
– Available for all types of properties: You can use an FHA loan to purchase a single-family home, a duplex, a triplex, or a fourplex. You can also use it to purchase a condo or manufactured home that meets certain standards set by the Department of Housing and Urban Development (HUD).
Drawbacks of an FHA Loan
Of course, there are also some drawbacks to consider before applying for an FHA loan:
– Mortgage insurance premiums (MIP): All borrowers who take out an FHA loan must pay MIP regardless of how much money they put down or what their credit score is. MIP is paid monthly, and it’s part of your mortgage payment. The amount you pay depends on the type of mortgage insurance coverage you choose (see below), how long your loan term is, and the size of your down payment (the larger your down payment, the lower your MIP will be).
Types of Mortgage Insurance Coverage with an FHA Loan
There are two types of mortgage insurance coverage you can choose from when taking out an FHA loan: annual mortgage insurance premium (MIP) and upfront mortgage insurance premium (UFMIP). With annual MIP, you’ll pay MIP every month as part of your mortgage payment until your MIP cancels itself out or until you refinance into a non-FHA loan. UFMIP is paid at closing time; it’s either added to your total loan amount or rolled into your interest rate (depending on which option saves you more money). Your UFMIP will also eventually cancel itself out; however, this process takes much longer than with annual MIP—11 years! So if you plan on staying in your home for longer than 11 years, annual MIP may be the better choice for you. However, if saving money upfront is more important than saving money over time, then UFMIP may be the better option for you.
Conclusion: Now that we’ve gone over the basics of what an FHA loan is and some of the benefits and drawbacks associated with this type of home loan, let’s recap:
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development (HUD). The main benefit associated with this type of loan is that it has relatively lenient qualification requirements when compared to other types of home loans. For example, borrowers can have a credit score as low as 580 and still qualify for this type of loan. Additionally, this type of loan is available for all types of properties including single-family homes, duplexes, condos, and manufactured homes that meet certain standards set by HUD. Some other benefits include low down payment requirements(3 . 5 %), easy qualifying guidelines, and no income limits. However, one major drawback to keep in mind is that all borrowers who take out an FHA loan will have to pay mortgage insurance premiums(MIP) every month as part of their mortgage payment until their MIP cancels itself out or they re-finance into a non -FHA loan.
