FHA
Federal Housing Administration (or FHA) loans are an attractive option for a first-time home buyer. These loans essentially allow you to purchase a home with less than a twenty percent down payment, which can often be the deciding factor in determining whether to rent or buy property. If you are interested in going the FHA route, it’s important to understand all the factors involved in securing this type of loan.
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How Does an FHA Loan Work?
This type of loan is different from a traditional loan in that it’s backed and insured by the FHA. These loans are offered to first time home buyers who plan to use the property as their primary residence. With this loan, the buyer will be able to put a minimum 3.5% of the purchase price as a down payment towards the property. Additionally, it’s possible to roll the closing cost of property into the loan as well. In order to qualify for this type of loan, you’ll typically need to show at least two years of continuous employment and have a credit score over 580. Don’t be discouraged if you don’t meet these criteria, these loans are designed to be flexible and can often take other factors such as consistent utility payment or rental payment history.
What You Should Know Before Committing to an FHA Loan
One of the most significant things you’ll need to understand when considering an FHA is the additional monthly cost of Mortgage Insurance Premium (MIP). When you put down less than 20% on a loan, the lender requires some additional insurance against default. Therefore, with an FHA loan, if you’re putting less than twenty percent down, you’ll need to pay monthly mortgage insurance (MIP) each month in addition to the premium, taxes, and homeowner’s insurance. The MIP is calculated based on the length of the loan (15, 20, or 30 year) and the total amount of the down payment. Some (but not all) FHA loans will automatically remove the MIP once you have paid off 22% of the loan.
Why This Type of Loan Might Work for You?
An FHA loan might be the right choice if you don’t have a full twenty percent down payment but feel confident that you can make a monthly mortgage payment and are willing to pay the additional MIP. If you are interested in learning more about the FHA loan and the application process, Signature Lending Services can be a great resource. We have extensive experience advising our clients and securing this type of financing. Call us at 877-948-2562 to get started.