FHA loans are backed by the Federal Housing Administration, who insures these loans so that mortgages may be accessible to a wider group of people, specifically borrowers who face a variety of financial challenges that would prevent them from getting a mortgage without it being insured.
This might mean that if your income isn’t very high, if you don’t have a lot for the down payment, you’re on a fixed income, have poor credit, bankruptcies or very little capital, the FHA insured loan can help you realize your dream of homeownership by paying the extra cost of insurance. Two types of mortgage insurance premiums (MIP) are paid on all FHA loans. The Up Front MIP of 1.75% of the loan amount is paid at closing, but can be financed as part of the loan. The annual MIP varies based on several factors and is paid with each monthly loan payment.
Advantages:
- Helps more people qualify for a home purchase
- Small down payments might help you take advantage of a smart buy without having to wait to save up the money.
- Lenders are eager to work with borrowers who insure their loans.
- Rates are competitive.
Disadvantages:
- The borrower pays to insure the loan, which costs a certain percentage of the total amount borrowed. In many cases, private mortgage insurance may be cheaper than an FHA insured loan.
- Rates aren’t as low as some other types of loans.
- Must be appraised by an FHA approved appraiser.
We often get asked whether getting accepted only for an FHA loan “is a bad thing,” and the answer is absolutely not! It’s common for first-time buyers to need the extra insurance because they haven’t established substantial credit yet. According to the 2012 National Association of Realtors’ Profile of Home Buyers and Sellers, more than half of all first time buyers took advantage of the FHA loan program.
When you work with the Mortgages Diversified team at Summit, you can trust that you’ll get the most competitive rate available.
We have partnered with families who, after a few years of diligently paying their FHA loan, are able to refinance and get a conventional loan after their income has increased, or after their credit has improved. For them, the FHA loan was a perfect way to start building equity right away when they were ready. For many in this market, this is the best way to grasp the brass ring.