Do you plan on buying a home in the new year? Maybe you’ve found the right home but are now trying to decide which type of financing is right for you? An FHA loan is a popular loan option that many Indianapolis home buyers choose. But how do you know if it’s right for you? Allow our loan experts at GVC Mortgage to answer a few common questions we get about the FHA loan.
1. What is an FHA loan?
The FHA 203(b) is a loan that you take out from a private lender but that’s insured by the Federal Housing Administration (FHA). What that means is that if the borrower doesn’t make payments or defaults on the loan, the lender will not be out of luck because the FHA will take responsibility for the mortgage. Because it’s backed by the FHA, lenders are more lenient in their lending requirements, making it easier for people to get a home loan.
2. Why is an FHA loan a popular option?
The main reason many people choose an FHA loan is that it doesn’t require a large down payment. Other loan types require 10 to 20% of the purchase price as the down payment. However, for most FHA loan situations, the buyer only has to pay 3.5% of the purchase price as the down payment. Additionally, according to Bankrate, lenders are more willing to offer lower interest rates to buyers because an FHA loan has less risk than a conventional loan for the lender.
3. What are the downsides of an FHA loan?
While FHA loans are popular for a reason, they do have a few requirements that make people look at other options. First, you should know that for an FHA loan, the buyer must pay for private mortgage insurance (PMI) premiums on top of their monthly mortgage payments, which can raise monthly payments. Second, according to the NY Times, some loan experts think that the FHA loan regulations are too lenient, making them more of a risk for home buyers.
Your best bet in determining whether an FHA loan is right for you is to speak with one of our loan professionals at GVC Mortgage. Each buyer’s situation is different. We can help you assess what’s best for you so you can make a financing option with which you feel comfortable. To schedule a consultation, contact GVC Mortgage today at (317) 564-4906.
photo credit: public domain via pixabay