FHA Loans

If you’re planning to buy a new home, you may have heard about Federal Housing Administration (FHA) loans. FHA is part of the Department of Housing & Urban Development. It doesn’t make or guarantee loans; it insures them. In doing so, it minimizes the risk of the buyer defaulting on the mortgage.

If you’re a first time buyer struggling to save up for a new house, FHA can help you lower the down payment and reduce the costs of closing. FHA works with approved lenders to help people get on the housing ladder. It’s especially beneficial for buyers with less-than-perfect credit histories, who may not qualify for a conventional mortgage. Even if you’ve filed for bankruptcy in the past, you can still get an FHA home loan just two to three years from the date of your bankruptcy discharge.

There is a limit of how much you can borrow. The maximum amount varies depending on where you live. In high-cost areas, the current limit is 115% of local median prices, up to $625,500. Nationwide, it’s $417,000. There are no income qualifications to apply for an FHA loan, but you must meet standard FHA credit qualifications.

FHA loans are a good option for many first-time low-income buyers. You can buy a house with a down payment as little as 3%. However, they are not the best option for everyone. FHA will insure your mortgage, making you more appealing to lenders. However, this comes at a cost. To get an FHA mortgage, you will have to pay an upfront mortgage insurance premium of 1.5%. There is also a small monthly fee that the lender adds to your mortgage payments. You will not need to pay these fees if you qualify for and take out a conventional mortgage.