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All Things FHA.
FHA loans are mortgages backed by the Federal Housing Administration and are considered an excellent choice for many homebuyers whether it’s their first home or fifth. Your Total Lending Concepts loan originator in Columbia, MO can go over the advantages, disadvantages, and guidelines of this type of government-backed mortgage. One thing to know is that FHA loans are for your primary residence. So if you need a mortgage for a second home or investment property, visit our conventional loan page.
What is an FHA Loan?
The United States Federal Housing Administration backs an FHA insured mortgage. FHA-approved lenders like Total Lending Concepts provides borrowers with this type of real estate loan. As we talked about above, you can’t get a loan for an investment property, rental property, or vacation home on the beach. These loans are for homeowners that will live in the home as their primary residence.
The top two advantages of FHA loans are:
- Low down payment – since you only need 3.5% down as compared to other programs that require 5% to 20% down, it’s much easier to get into a home.
- Lower credit score – can be as low as 580, so even if your credit isn’t the best, you may still be able to qualify right now.
The top two disadvantages of FHA loans are:
- Monthly private mortgage insurance premium for the life of the loan – the monthly payment for PMI can vary, but sometimes it isn’t that substantial, especially since FHA rates are lower. In fact, at Total Lending Concepts, it’s not uncommon for our clients who are renters to have a mortgage payment be very close to what they’re paying for rent.
- Upfront mortgage premium that increases closing costs – but there are ways around this, which your loan officer can tell you. For example, you can add upfront PMI into your loan amount, or ask for the seller to pay for a portion of your closing costs. We can help you figure out what is best for you.
If you’ve fallen in love with a fixer, there’s also a particular loan called a 203k which is sometimes called a rehab loan. With this loan, you can have one loan to cover both the cost of the home purchase and a certain amount for home improvements. For example, if you find a house that you like, but it needs a new roof, a 203k might be the perfect solution.
FHA Loan Requirements
The requirements for an FHA loan are much less stringent than a conventional loan. They include:
- Credit score – a minimum of 580
- Down payment – only 3.5%
- Debt to Income ratio – 43%
- Occupancy – primary residence
That’s why many first-time homebuyers love this type of loan and can make their dream of homeownership come true. At Total Lending Concepts, we can go over every requirement and answer any questions you may have. We answer questions all day and are happy to answer yours!
FHA vs. Conventional Loans
There are several differences between FHA loans and conventional loans. Here are the main ones:
The main difference between an FHA loan and a conventional loan is the US government insures the loan, and an FHA is usually easier to qualify for. But, with this type of loan, you will always have private mortgage insurance for the life of the loan.
Conventional PMI comes off, FHA private mortgage insurance never does. But even with the PMI, FHA rates are usually lower, so it may be worth it.
But keep in mind that FHA doesn’t fund investment properties or second homes. If that’s what you need, Total Lending Concepts can still help you with the perfect investment mortgage loan program.
- PMI – Private mortgage insurance never comes off an FHA loan, it’s there for life. On a conventional loan, once you have 20% equity, you can request for it to be removed.
- Credit – With an FHA loan, your score can be as low as 580. But with a conventional loan, you’ll need at least a 620 credit score.
- Occupancy – only for your primary residence so if you’re an investor or want a second home – FHA won’t work.
FHA Loan Limits
Just like conventional loans, FHA has limits which will depend on the location you want to buy a home. To find out the limit for your area, visit FHA Mortgage Limits where you can look up limits by both state and county.
Ready to get started on your journey to homeownership? Let your friends at Total Lending Concepts in Columbia, MO help you make your dreams of homeownership come true. Contact us today to get your FHA loan.