Navigating home financing options can be confusing, especially when it comes to programs that are regulated by the federal government. That’s why at Mortgage Solutions Financial, we’re here to provide clear guidance on government-backed loans like FHA mortgages. In this article, we’ll walk through what an FHA mortgage is, who it’s best suited for, and how to determine if it’s the right fit for your home-buying needs.
What Is an FHA Mortgage?
An FHA mortgage is a government-insured loan backed by the Federal Housing Administration (FHA). These loans require a lower down payment and have more flexible credit requirements versus conventional mortgages. While these features can be incredibly advantageous to buyers, the trade-off is that FHA mortgages require mortgage insurance.
Who Is an FHA Mortgage Best For?
FHA home mortgages are a great choice for a wide range of buyers but are especially popular among:
- First-time homebuyers
- Homebuyers with limited funds for a down payment
- Buyers with moderate income
- Buyers with lower credit scores
How to Know if an FHA Mortgage Is the Right Option for You
If you’re thinking about an FHA mortgage, you may want to consider factors like:
- Down payment amount – Can you afford at least 3.5% down? If so, an FHA loan could be a great option for you!
- Credit score/history – Usually borrowers need a minimum FICO score of at least 580 to qualify.
- Debt-to-income ratio – Lenders set limits on the amount of debt a borrower can carry versus their income. This impacts loan eligibility. Your lender will most likely want to see a DTI of 43% or less.
- Loan use – FHA loans can be used to purchase or refinance a primary residence.
FHA Loans Vs. Conventional Loans
FHA loans and conventional loans have some distinct differences that borrowers should be aware of. The main advantage of an FHA loan is that it requires a lower down payment – only 3.5% of the purchase price, whereas conventional loans typically require 5-20% down. This makes FHA loans more accessible for buyers who don’t have a lot of money saved for a down payment. FHA loans are also more flexible when it comes to credit score and debt-to-income requirements.
Additionally, the mortgage insurance on an FHA loan is payable for the life of the loan if the down payment is less than 10%. For a conventional loan with private mortgage insurance, the PMI (Private Mortgage Insurance) may be able to be removed once 20% equity is reached.
Get Guidance from an Expert
Our team has extensive FHA home mortgage experience. We’d be more than happy to review your situation to see if an FHA home loan may be a good fit for you. Contact us today to get started!