Buying your first home is one of the most important decisions you will make in your lifetime. It is not without challenges, of course, and wading through the numerous steps and requirements might seem both frightening and tedious. It all starts with knowing what type of property you want and can afford and securing the financing you need. First-time homebuyers often have the advantage of a wider variety of mortgage options including FHA-backed loans. Knowing what to expect can make the buying process easier and get you into your new home all that much quicker.Verify my mortgage eligibility (Aug 6th, 2020)
What is an FHA Loan?
An FHA mortgage loan is a loan for homebuyers insured by the Federal Housing Administration. The insurance protects lenders including banks and credit unions in case of default. It was established as part of the National Housing Act of 1934 to help make homeownership more affordable to the average American. Over 8 million single-family homes are FHA insured today.
What Are The Benefits Of An FHA Loan?
FHA loans are popular with new buyers for several understandable reasons. Like all other financing options, there are good reasons and bad reasons to choose an FHA mortgage loan when you are ready to purchase your first home. Here are a few advantages of securing this type of government-backed loan.
- Lower Minimum Credit Score — You don’t have to have a perfect credit score to get an FHA loan. Mortgage lenders look for a credit score of at least 600 compared to conventional mortgage requirements of a 700+ score.
- Lower Down Payment — FHA also allows first-time homebuyers to make a lower 3.5 percent down payment on the mortgage. Traditional mortgages often require up to 20 percent down so it can make all the difference to those potential buyers with less cash on hand.
- Help With Closing Costs — You can ask the seller to pay some of the closing costs with an FHA mortgage. It is possible to ask for up to 6 percent of the purchase price of the home. You can also use cash gifts from friends or family members to cover closing costs.
What Are The Downsides Of FHA Loans?
FHA loans may have great benefits for borrowers but there are downsides to this option too. It is always smart to know both the pros and the cons before you make your final decision.Verify my mortgage eligibility (Aug 6th, 2020)
- There Are Loan Limits — There will be limits on how much you can borrow for a mortgage with an FHA loan. The amount varies depending on where in the country you want to buy. Limits are generally quite high but it is a good idea to know ahead of time how much house you can afford.
- Mortgage Insurance is Required — FHA mortgage insurance is built into every loan granted. The premium is charged monthly and is sometimes twice the amount you would pay with a traditional loan. With a down payment of less than 10 percent, you will have to continue to pay the mortgage insurance for the life of the loan.
- Minimum Property Requirements — The home you are buying must meet certain requirements after a mandatory appraisal by the FHA. This is separate from the usual home inspection process and determines standards of livability and basic safety.
What Are My Other Options?
Standard home loans are not backed by the FHA but sometimes offer more flexibility and simple advantages. Even if you think you might not be approved, it is worth shopping around. Additionally, consider checking into what is available in a conventional mortgage. Those who have served our country in the military should look into securing a VA Home Loan. It often comes with a 100% financing lending option without a mortgage insurance requirement. It could be the best deal for veterans who are first-time homebuyers.
Atlantic Home Mortgage is happy to help first-time homebuyers navigate through the home buying process. We offer friendly and professional mortgage services sticking with you from start to finish. Contact us anytime and let us know how we can help you get into your dream home.