If you’re in the market for a home loan, you might want to consider what’s known as a Federal Housing Administration (FHA) mortgage. This type of loan is insured by the government and issued by a bank or other lender that the agency has approved. One of the benefits of this mortgage is it requires a lower minimum down payment and requires applicants to have lower credit scores than other home loans.
Its arrangement is partly due to its nature: this type of home loan was created for low- to moderate-income households, especially first-time homeowners, to rent or own a house. An FHA mortgage is also insured by the federal government, which is why banks and other legitimate lending institutions are more open to loaning for this arrangement. Credit scores and cash-outs need not be high enough to qualify.
Mortgage History
The U.S. Congress created the FHA in 1934 during the Great Depression, when default and foreclosure rates had skyrocketed. Congress created the FHA to help the housing industry by making mortgage loans more accessible, requiring only a 10 percent down payment and a shorter term, and creating a mortgage-backed securities process that would pool all of these loans into a new kind of asset.
As a result of the government’s efforts, the homeownership rate in the U.S. steadily climbed from the 1950s to 2004, when it peaked at 69.2 percent. In the third quarter of 2021, the rate stood at 65.4 percent.
Mortgage Qualifications
Qualifying for this type of mortgage is easy. In terms of credit score, you only need a rating of 580 minimum to borrow nearly 97 percent of the home’s value in 2022. Thus, the required down payment is only 3.5 percent!
If your credit score falls below 580 but not under 500, there is still hope for an FHA mortgage. You can still qualify by making a 10 percent down payment.
Since the federal government will pay for most of the home’s price, the down payment amount can be funded from your savings, monetary gifts from loved ones, or a downpayment assistance grant.
Mortgage Process
Though you will get the amount from a bank, it is not the institution lending you the money. Banks are merely the issuers of the loan acting on behalf of the FHA, the real institution funding financing the mortgage.
Thus, as mentioned in the prior subpoint, the federal government guarantees the loan and bears the risk. This arrangement is why FHA mortgages are called FHA-insured loans.
While the downpayment and loanable amounts for this mortgage are appealing, there is one downside. Homeowners who qualify must purchase mortgage insurance alongside the home loan. This policy protects the government from potential losses if borrowers cannot make punctual payments or end up defaulting on the property altogether.
Mortgage Types
Any homeowner can take advantage of the following FHA mortgages:
— FHA 203(k) Improvement Loan: Borrowers can factor certain repairs into this loan, which is helpful for a fixer-upper.
— FHA Energy Efficient Mortgage: A loan similar to the 203(k) improvement plan, but for improvements that make utilities more affordable.
— Home Equity Conversion: A reverse mortgage program that provides seniors 62 and older with cash from the equity in their homes while they remain in the house as long as they live.
— Section 245(a) Loan: These flexible mortgages work for borrowers who expect their incomes to increase. The loans start with lower payments that gradually increase over time and promise shorter terms.
Find an FHA Mortgage That Works for You
You’ll have your work cut out for you with the sheer amount of home loans to choose from. But if you need one at a low cost, attractive payment schemes, and multiple options, an FHA mortgage is the one for you. Since the federal government insures these, the last thing we’ll say on the matter is to work with a legitimate broker who can find you the best loan that matches your present and future needs.
Whenever you need a mortgage in Colorado Springs, only one name comes to mind: Total Lending Concepts! We offer home loans to fit every situation, whether you are a first-time homebuyer searching for your first home or ready to buy that dream home you’ve had your eye on. Apply now via our website! We also serve Columbia, MO, Tampa, Dallas, Alamosa, CO, Pueblo, CO, Neosho, MO, Jefferson City, MO, San Antonio, Bell, FL, and Southlake, TX.
