FHA Loan Basics

Low down payments and flexible qualifications make these federally insured loans a favorite with first time homebuyers.

With less than four percent down, you could be holding the keys to your new home. Sounds pretty sweet, right? We also think so. FHA loans are an incredible opportunity for many prospective homebuyers and those looking to refinance.

What is an FHA Loan?

Long story short, an FHA loan is a lender-protected loan.

Short story long, in the 1930s there was a rash of foreclosures and defaults which left both lenders and borrowers in a precarious situation. It was the Great Depression. Banks weren’t lending. People weren’t working. The housing market resembled a turtle on its back.

Thus, the Federal Housing Administration (FHA) was established under the National Housing Act of 1934. By making loans accessible and affordable the FHA hoped to stimulate the housing market.

Today, these federally insured loans have become a favorite for first time homebuyers. However, they aren’t just for first time homebuyers. You can qualify for an FHA loan at any time.

I Don’t Have Perfect Credit

Credit problems happen. Life doesn’t always go as planned. We get it. These hiccups don’t automatically disqualify you. In addition to low down payments, FHA loans also include flexible approval guidelines and lending limits of up to $729,759*.

What’s the Catch?

Insurance. In the long run, FHA loans can cost you more money. Each FHA loan is required to have a Mortgage Insurance Premium (MIP). This is charged to the borrower in two parts: one lump sum paid with then loan is closed and one regular monthly payment.

While these insurance premiums may make you cringe, it’s important to remember the low down payment requirements you enjoy and increased risk assumed by both the lender and the FHA.

FHA-Approved Appraisal. To receive an FHA loan, the home you purchase must meet certain standards. Whether or not the home you’re considering qualifies, it must be appraised by an FHA-approved appraiser.

One at a time. Sorry folks. These mortgages aren’t an endless bank of potential cash. You can only carry one at a time.

Curious if an FHA loan is right for you? Contact Rob today.

*FHA loan limits vary by market. Ask for details of limits in your area. This information is not intended to be an indication of loan qualification, loan approval or a commitment to lend.


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