The decision to buy a home is exciting, but the process of buying a home can be an information overload. A good place to start is to know what type of mortgage you're going to apply for. One of the most common mortgage types is an FHA loan. An FHA loan is a mortgage insured by the Federal Housing Administration. The requirements are less strict and the interest rates are usually lower than a conventional loan, making them a popular choice for homebuyers. Here are some questions to ask yourself to see if an FHA loan is right for you.
How much down payment can you afford?
One of the reasons FHA loans are so attractive - especially to first-time home buyers - is their low down payment requirement. Only 3.5% is required for an FHA loan, far less than the traditional down payment loan of 20%.
What is your credit score?
The 3.5% down payment only applies if you have a minimum credit score of 580. If your credit score is between 500 - 579 a 10% down payment is required.
Do you know about mortgage insurance?
Because the federal government backs FHA loans, borrowers must pay two types of mortgage insurance, to protect the lender in case they default on the mortgage payments. The upfront mortgage insurance premium (MIP) is an upfront monthly premium payment of 1.75% of the home loan. This can be paid all at once, as part of closing costs, or can be rolled in to the mortgage. The annual MIP is a monthly charge based on the borrowers loan-to-value, loan size and loan length. The monthly amount is figured in to your mortgage payment.
What's your (and your potential home's) history?
FHA borrowers must have a steady employment history or worked for the same employer for the past two years. They must have a valid social security number and use the home they plan on purchasing as their primary residence. The home has to be appraised by an FHA -approved appraiser and the property must meet certain minimum standards at appraisal. Other requirements may vary by lender.
It's also important to note that maximum FHA loan limits vary by state and county. Be sure to check the loan limits for your area of choice before you begin your home search.
Citywide Home Loans make the loan process simple. Visit www.citywidehomeloans.com to see how much home you can afford and find a loan program that's right for you.