What Is an FHA Loan?
An FHA loan is an FHA-insured mortgage loan, meaning it is backed by the Federal Housing Administration. Since it is backed by the FHA, this loan type is designed to help give borrowers who might not qualify for private mortgages a chance to become homeowners.
Alternative to many conventional loans, FHA loans typically require a lower minimum down payment and lower credit scores. This is why many first-time homebuyers with limited savings or lower credit scores find an FHA loan as the most affordable mortgage option.
There are a few different types of FHA loans you may consider while researching or talking with your mortgage broker, including:
- Basic Home Mortgage 203(b)
- 203(k) Rehab Mortgage
- Construction Loan
- Title 1 Property Improvement Loan
- Energy Efficient Mortgage
Is an FHA Loan Right For Me?
As discussed early, there are many benefits to choosing an FHA loan, but there are also some downsides. Depending on your financial situation, you may find the FHA as your best option, or you may want to pursue a different type of loan. Either way, weighing the pros and cons is a vital step to making sure you’re equipped with the best loan for you. So, let’s dive into what an FHA loan has to offer!
The Benefits
- Lower minimum down payments
- Lower credit score requirements
- Quicker ability to go from renter to homeowner
The Drawbacks
- Require mortgage insurance or PMI
- Property requirements must be met, limiting purchase options
- Higher APR in many cases
- You must live in the home