If you need to finance a home purchase or refinance but feel as though the more traditional fixed rate and adjustable rate mortgages aren't the best fit for your situation, you can look into an FHA loan as another possibility.
What is an FHA loan?
An FHA loan is one that is insured by the Federal Housing Administration (FHA). The administration makes a guarantee to the approved lender that it will back the mortgage loan, thereby reducing its risk.
Why consider a FHA loan?
This type of mortgage is particularly beneficial if you are worried about qualifying for a loan. Here are four things you should consider about an FHA loan:
- Easier to qualify: Because an FHA loan is backed by the government, it is typically easier to qualify for one compared to any other type of mortgage. The lowered risk that comes from the government insurance allows lenders to offer less strict lending requirements. As such, it can be a good path to follow if your credit is not perfect or if you are a first-time homebuyer, for instance.
- Low down payment: Part of what makes an FHA loan easier to qualify for is its low down payment of 3.5 percent. This is a great way to still own a home even if you are unable to afford a traditional, more expensive down payment. This money can be a gift by a family member under the FHA's regulations.
- Extra steps: The FHA has a few stipulations when it comes to getting a loan. Mainly, the house has to meet certain standards and it must be appraised by someone approved by the administration.
- Assumable: An FHA loan is assumable, which means that if you sell your home, the buyer can assume the mortgage in your place. This is also an advantage for someone who needs a co-signer in the beginning of the lending process but later wants to assume the entire loan once they acquire the proper finances.
Who qualifies for this type of mortgage?
As mentioned, an FHA loan tends to be the easiest mortgage to qualify for. Employment history, income and property standards are the main factors that will be considered.
- Employment history: A steady employment history will help you get approval for any loan, including an FHA loan. Typically, it is most to your advantage if you have been at the same job for at least two years. This will further lower the risk the lender would be assuming.
- Income: With an FHA loan there are no income limits which you might find with other programs such as USDA.
- Property standards: The FHA will require your home to meet certain standards at appraisal before you can be approved for the loan. If these are not met and the seller will not pay for the required repairs, you have the option of paying for them yourself at closing.
Contact us at (608) 833-2400 to discuss if an FHA loan is the best option for you.