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If you're a first-time homebuyer, you may be wondering how certain specialty mortgage programs work and why you might consider them. One of the most common such options for first-time buyers is the FHA loan -- what exactly is this, and why is it often a great program for those just entering this world for the first time?
At Primary Residential Mortgage, our wide range of mortgage loans includes a number of special programs, with FHA loans absolutely among them. What is an FHA loan, and why is it so beneficial to many first-timers? This two-part blog series will go over everything you need to know, including some basic qualification and application requirements you'll want to consider if you're pursuing an FHA loan.
FHA Loan Basics and Benefits
For those just learning about mortgages, "FHA" stands for Federal Housing Administration. The FHA is a division of the U.S. Department of Housing and Urban Development (HUD), and it's their job to encourage homeownership by insuring home loans. So when you take out an FHA loan, your lender can feel confident they're being protected against possible borrower defaults.
In addition, the FHA secures loans in a way that allows for some major benefits to potential borrowers. These include:
- Low credit requirements: Anyone with a credit score of 580 or higher can qualify for an FHA loan, as opposed to the 620 score needed for a conventional mortgage. For many people just starting out, this can make homeownership much more attainable.
- Low down payment requirements: FHA loans allow you to put as little as 3.5% down on a home purchase. For many borrowers, this means they can make their first home purchase with little out-of-pocket costs and without having to take on rent or utility payments.
In many cases, FHA loans are used specifically to help first-time homebuyers enter the market. But these loans aren't just limited to those who've never owned a home before -- anyone who meets the credit and down payment requirements can apply.
Obtaining an FHA Loan
Here are some important steps to follow when looking to obtain an FHA loan:
- Find a good lender: You'll want to contact your local bank or mortgage lender and make sure they're qualified to provide FHA loans.
- Pre-qualify for a loan: Once you've found the right lender, they can help you find out if you meet their lending requirements. If so, this will allow you to have a better idea of what your costs are before you actually apply for a loan.
- Apply for the loan: Once you've been pre-qualified, you can move ahead with applying for an FHA loan. This includes a thorough review of your credit report, debt history and employment status to see if you qualify.
- Work on closing costs: Many lenders will also allow you to make a down payment of up to 10% of the purchase price and use the FHA loan to cover the rest. This is called a "seller concession" or seller-paid closing cost, and it can really help reduce your out-of-pocket costs when purchasing a home.
In part two of our series, we'll go over some basic FHA loan requirements, plus some other elements to consider if you're going this route. For more on this, or to learn about any of our mortgage rates or high-quality home loans, speak to the team at Primary Residential Mortgage today.
*PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Opinions expressed are solely my own and do not express the views of my employer.