Purchasing a first home is one of the most exciting moments in many adults’ lives. And for first-time home buyers, an FHA loan can be a great way to achieve home ownership.
But what exactly is an FHA loan, how is it different from a regular mortgage, and what makes it such a good choice for those buying a home for the first time?
Read on to learn more about FHA loans and why they could be a great choice for you:
What is an FHA Loan?
An FHA loan is a home loan that is insured by the Federal Housing Administration.
These loans allow a smaller down payment, as low as 3.5% in some cases, which makes them a great choice for someone with a small budget or who has never purchased a home before.
Unlike conventional mortgages, you may also find FHA loans have fewer restrictions, which makes it a bit easier for a young person to obtain one.
How Does an FHA Loan Work?
An FHA loan starts with the opportunity to use a smaller down payment than is required by many conventional loans.
If you’re getting assistance with your down payment, an FHA loan is likely the best choice, since it allows for a gift donor, usually parents.
An FHA loan is also great for a first-time buyer because the credit restrictions are more relaxed. That means people with poor credit or without a lengthy credit report can still qualify for a home loan.
It’s important to keep in mind that FHA loans are often available in smaller amounts than conventional mortgages, and there are limits to how much can be borrowed. This amount varies based on the county, city, or state you are buying in.
Additionally, an FHA loan must have mortgage insurance. This offers protection to the lender in case of a foreclosure or
a failure to pay.
Mortgage insurance is generally paid in two parts. The first is paid at the closing of the home sale, and the second portion is paid monthly for the life of the loan.
What to Do Before Applying for an FHA Loan
It’s important to understand your finances before applying for an FHA loan or any other type of mortgage.
Start by determining how much you can afford in terms of a monthly mortgage payment. An FHA loan calculator can help you find this amount.
Simply enter the cost of the home you’re considering, the interest rate, your location, and some other key details, and the calculator will give you an estimate on the total monthly cost.
This is also a good time to find a real estate agent and work through the process of getting pre-qualified. Ideally, you’ll also want to put together a list of lenders that offer FHA loans and see if you quality for pre-approval.
With any pre-qualifications and pre-approvals in place, and a clear idea of how much you can spend, you’re ready to start looking at houses!
This is an exciting time for a home buyer, so be sure to take your time and enjoy it rather than buying the first house that comes along…unless it truly is your dream house!
While going through the process of obtaining an FHA loan can take some time and effort, it will be well worth it when you get the chance to enjoy home ownership in the years to come.