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What You Need To Know About Fha Mortgage Loan
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Before going into the specifics of the FHA loan, it’s crucial to first address the question: what is a mortgage? You might be surprised to know how many people don’t understand the terms they signed up for, as proven by the housing bubble that burst and left hundreds of thousands of Americans homeless. In basic terms, a mortgage is a collateralized debt you will take on to pay for your home. Once you default on payments for a certain period, the bank can take away your home.
What is FHA loan and is it right for me?
The FHA loan allows for a loan downpayment, which makes it attractive for first time buyers. Why would banks agree to lower the payments for home loan rates? That’s because the loan is insured against default by the Federal Housing Administration. Once you default on payments, the FHA will owe the lender. In theory, nearly everybody can qualify for an FHA loan since it doesn’t place a cap on income.
There’s no minimum credit score under the FHA, or to rephrase it: your credit worthiness will be assessed individually. Theoretically, even if you have filed for bankruptcy you are still going to qualify for an FHA loan. However, even with the FHA loan, some lenders might still use your low credit score against you.
FHA is not a lender
You don’t apply at the FHA for a home loan because it’s an insurance fund. You need to deal with lenders that are certified by the FHA. Again, the cost of mortgage can vary from lender to lender, and from location to location. You won’t be approved, for example, if you take out a loan greater than the average housing prices in your area. That’s why it’s crucial that you ask around to get the most attractive home loan rates.
What about insurance?
When you take out an FHA mortgage, grandfathered into the contract are two insurance premiums: the upfront premium which represents about 2.25% of the total loan amount as well as the annual premium which is 0.55% of the amount. You can either pay the upfront premium when you take out the loan or can be incorporated in your home loan rates. The annual payment, meanwhile, will be paid along with the monthly mortgage payment. You must however do your due diligence and compare the FHA loan with the rates offered by non-FHA accredited lender to find out which is better.
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