An FHA loan is a government-backed mortgage insured by the Federal Housing Administration (FHA). This type of mortgage is popular with first-time homebuyers and those who do not have the means for a larger down payment. But how do you know if an FHA loan is the right decision for you? Along with the four considerations below, GVC Mortgage can help you decide if this type of mortgage is best for you and your family.
1. Lower Credit Score
Your credit score can be as low as 500 in order to qualify for an FHA loan. A credit score of 580 or higher can maximize your borrowing power, requiring a minimum down payment of 3.5%. The higher the credit score, the lower the down payment required.
2. Lower Down Payment
When choosing an FHA loan, it’s quite possible to pay little to nothing at all for a down payment. For example, an FHA 203(b) eliminates the need to save a large sum towards a housing loan down payment. As a buyer, this also allows you the option to negotiate lower interest rates for your mortgage.
3. Higher Mortgage Insurance Premiums
All FHA loans require two types of mortgage insurance. An upfront mortgage insurance premium is due once the FHA loan is received, but can be rolled into the overall loan. Annual mortgage insurance premiums are due each year but can be paid monthly. Both of these premiums ensure that the mortgage will be paid to the lender if the borrower should fall on difficult times and default on the loan.
4. Lower Closing Costs
Closing costs can vary based on the state in which you reside, as well as the amount of the loan. Housing and Urban Development (HUD) limits the amount lenders can charge for closing costs, keeping them between 3 and 5 percent of the total loan amount. The unique benefit of an FHA loan allows for closing costs to be covered by the seller, the lender, or even a builder for new home construction.
These are only a few features of an FHA loan. If you have further questions, contact our professional team at (317) 564-4906 or apply online for a loan today. We gladly serve Indianapolis, Fishers, Westfield, and the surrounding communities.