The Essentials of FHA Loans
In the United States, becoming a homeowner is usually a part of early adulthood in which most people take extreme levels of pride. Becoming a homeowner is often a difficult task though, especially when it comes to saving for a down payment. Luckily, the Federal Housing Administration (FHA) backs loans in order to help people become homeowners without needing a major down payment or having a high credit score.
In today’s blog, we will discuss FHA loans and how they work. We are hopeful that this blog will help you determine if an FHA loan is right for you. If you decide to get an FHA loan in Colorado, then apply through Local Mortgage and get insight from our mortgage experts. Our Mortgage I.D. tool can even help you determine what type of mortgage is right for you in only nine questions!
The Idea Behind FHA Loans
During the Great Depression, the U.S. faced a significant housing problem. The steep requirements surrounding mortgages made it difficult for most people to buy houses, and as a result, most people in the United States rented. This caused trouble when the stock market fell, leaving many people in a challenging housing situation.
In response to these problems, the U.S. Congress made the Federal Housing Administration. The purpose of the FHA is to make it easier for Americans to become homeowners and have the financial security that comes with homeownership. Thanks in part to the FHA, owning a home became an integral part of American life.
FHA loans are the most significant way the FHA helps Americans become homeowners. FHA loans are mortgages that are insured by the FHA and issued by an approved lender, such as Local Mortgage. This means that the FHA itself does not lend money for the loans, but rather backs the loan to make the mortgage less risky for lenders. As a result of this backing from the FHA, borrowers can get mortgages with lower down payments and credit scores than they would otherwise need to secure a mortgage. Since high down payment and credit score requirements are often the largest barrier to securing a mortgage, this makes it much easier for many people to buy a home.
FHA Loan Requirements
Although FHA loans allow borrowers to use a smaller down payment and have lower credit scores, there are still some requirements faced by borrowers. As of 2019, you can secure an FHA loan with a down payment as little as 3.5%, provided you have a credit score of at least 580. For comparison, consider that most conventional loans expect a down payment of 20% and a minimum credit score of 620.
The FHA can also help people with credit scores below 580, as long as put at least 10% down on the house. The FHA does require a minimum credit score of 500 on their loans, but this still provides an excellent option for people with low credit scores. Similarly, the FHA’s requirements can be beneficial for people who have difficulty saving for a down payment, such as first-time homebuyers.
FHA loans require borrowers to pay monthly mortgage insurance premiums. These premiums help the FAH back the loans and vary depending on the mortgage as well as the unique situation of the borrowers. That said, the monthly mortgage insurance premiums associated with FHA loans are often manageable and can be easier to handle than saving for a down payment.
The Benefits of FHA Loans
The primary benefit of FHA loans has been discussed at length; these loans make homeowners out of people who would otherwise be unable to purchase a house. Whether you have some trouble saving for a down payment, have bad credit, or a little bit of both, an FHA loan can help you become a homeowner. This can lay a strong foundation for your financial future, giving you the financial stability and benefits homeowners receive. As a homeowner, for example, you get the chance to begin building home equity, which is a powerful financial asset.
Moreover, FHA loans usually come with competitive mortgage interest rates. This makes monthly payments extremely manageable, and means that you are not put at a disadvantage simply for seeking an FHA-backed loan. In fact, you could end up in a better financial position than those with conventional loans, especially if they struggled to make the down payment. To see how competitive interest rates for FHA loans can be, check the rates from Local Mortgage!
Get Your FHA Loan Through Local Mortgage!
Hopefully, today’s blog post has given you some insight into the essentials behind FHA loans. The Mortgage I.D. tool from Local Mortgage can help you determine whether an FHA loan is the right type of mortgage for your situation, and if you have questions, you can contact our expert team. At Local Mortgage, we are proud to help the FHA continue to give more Americans the chance at homeownership.