What You Should Know About FHA Loans
Some of the most effective ways to purchase real estate include cash, conventional loan, VA Loan, FHA loan, and more. However, in this article we have chosen to highlight FHA loans by drawing on the collective knowledge from professionals all over the united states!
...Determining If An FHA Loan Is Right For You
There are many different loans out there that are available, however, an FHA loan is specifically designed for people who have little or no money to use as a down payment. Kyle Hiscock outlines it perfectly in his blog stating "The FHA mortgage has lenient credit standards and will also allow the seller to pay closing costs, much like the VA and USDA loans. The FHA is different in that they do require 3.5% of the purchase price to be paid as a down payment." Kyle outlines some of the other loans available if you decide that this one is not quite right for you.
FHA Mortgage Program...Finding Out Exactly What That Means
Next, you will want to learn the ins and outs of an FHA loan and if it will work for you. To do this you will want to check out the FHA loan requirements and guidelines, as well as some general information about the loans. Luke Skar says "Other than the down payment requirement, the biggest hurdle for some borrowers is the strength of credit needed to buy a home. Many young people simply have not established much debt in their own name, other than a rent payment. In order to overcome this situation, FHA will allow a non-occupying co-borrower. This is a perfect situation for a parent or grandparent to sign on the mortgage and allow a young person to buy a home and build up their credit. It is important to note that the co-borrower is not required to live in the home. However, the co-borrower is legally responsible for the loan just as much as the person(s) that intend to live in the property."
A common question when discussing loans is what is the difference between FHA, VA, and conventional loans? The answer is that a conventional loan is not guaranteed by the VA or insured by the government. A conventional loan is for someone with cash available for a down payment and an FHA loan would be better for someone who does not have very much money to put down on a house. Karen Highland from Maryland does a fantastic job of laying out the differences between an FHA, VA and Conventional loans. Her logic "In today’s real estate market, with historically low interests rates that are poised to go up as the economy recovers, many first time buyers are opting for FHA loans with lower down-payments. Rather than waiting to save enough for a 20% down payment that is necessary for many conventional loans, taking advantage of an FHA loan at today’s interest rates is a smart move. In the time that it would take to save that amount, interest rates will very likely rise and mitigate against the monthly savings from a higher down-payment."
Next, you will need to talk to a loan officer to find out if you are eligible for an FHA loan. If you need to speak with a loan officer click here. Ryan Fitzgerald, in his article What do I need to know about mortgages when buying a home, really explains the details of different low-income loans including FHA and what types of things you will want to make sure you have in order to get one of these loans. "One major advantage of an FHA loan is that it is Assumable. You can assume the remaining balance if you want someone to take over the loan which is a huge asset. Your listing agent should help ensure the loan servicer has made arrangements that allow for the assumable loan." His article has specific details about his home state of North Carolina however, much of the information is also applicable in many other states as well.
The next step would be to consider all other options as well as an FHA loan to make sure that you are choosing the right loan for you and the best way to do this is to listen to the comparison that Paul Sian lays out in this podcast!
Although FHA is available for condos there are different qualifications that are necessary in order to get an FHA loan approval. Don't let this discourage you though, because Bill Gassett from Massachusetts has outlined this subject in great detail for you. "By purchasing a condo that is eligible for an FHA loan, you have allowed the government to do a lot of the work for you in guaranteeing your investment. Not only have you managed to get a good loan towards your purchase, but you have also ensured that the majority of the people living in your condo association will be owners and will be up on their association dues." If you are interested in purchasing a condo with an FHA Loan then take some time to research what is necessary to get your pre-approval.
First time home buyers who cannot afford a large down payment often get the impression that an FHA loan is their only available option. This is not always the case. Erika Lewis exposes on Bad Advice #4 of her article Worst Mortgage Advice. "First-time home buyers are particularly susceptible to bad advice. For example, homeowners who can’t afford a large down payment may hear that a government-backed FHA loan is their only option since the down payment requirement can be as low as 3.5 percent of a house’s purchase price. But that’s not necessarily the case. Some homeowners might be surprised that getting a conventional loan might be better suited – and easier – for them than an FHA loan, says Aaron Vantrojen, president of the Arizona Association of Mortgage Professionals, says."
Hopefully, this article has been helpful in your decision as to whether or not an FHA loan would be the best for you and your circumstances. If you have any questions please post them below and I will do my best to answer them... and remember real estate should be fun!