The 7 Most Common FHA Loan Questions (Answered!)
You may be thinking about buying or refinancing your home and have begun researching your mortgage options. You keep hearing about FHA loans, both through your searches and in the news, but you're not sure what exactly a FHA loan is, let alone, if you should you get one.
1. What is a FHA Loan?
A FHA loan is a mortgage backed by the federal government and offered to people who:
• Desire the security of a government-insured home loan
• Have a need for financing more than 80% of their home value
• Have credit scores as low as 580
2. Who are FHA loans for?
FHA loans have traditionally helped first-time home buyers, military families, the elderly, handicapped or lower-income families. However, in reality, anyone can get a FHA loan. Ultimately, you should review this option with a certified home loan expert to see if it's the best loan for you.
3. What does FHA stand for?
FHA stands for Federal Housing Administration, which is a program that has been in place since the 1930s. The FHA's goal is to help stimulate the housing market by making home loans accessible and affordable.
4. Do I qualify for a FHA loan?
As with most home loans, you need to prove that you have a stable job and that you reliably pay your bills. If you can prove that you have been a good credit risk for the past two years, your chances at qualifying for a FHA loan increase. Make sure you check your credit score and your state's FHA qualification limits.
5. What are the advantages of a FHA loan?
• You can buy a home with an FHA loan with a low down payment, as small as 3.5% - much lower down payment than conventional home loans offer.
• You can use gifts (such as borrowed money or a monetary gift from a family member) for down payments and closing costs.
• There are no prepayment penalties, so you can refinance or pay your home off early without worrying about paying for this option. This is especially important for subprime borrowers since most non-FHA loans for subprime borrowers have pre-payment penalties.
• You may be allowed to assign your FHA loan to another person if you choose.
• You may receive leniency if you stumble across hard financial times while paying your home loan.
• You can fund for home improvements with the FHA 203K program.
6. What are the potential reasons not to get a FHA loan?
• There are limits to how much you can borrow with FHA loans, so you may not get all the money you need if you're looking to get a larger home loan.
• The upfront mortgage insurance premium may cost more than private mortgage insurance. (For more information about the FHA loan insurance, click here.)
7. Where do I get a FHA loan?
Our FHA loan experts at Guaranteed Rate can help you obtain a FHA