Is a FHA Loan Right for You?

posted 12/10/2015 in Mortgage

FHA loans for your first house with Lincoln Savings Bank

As the economy continues to strengthen and the housing market improves, many people, like yourself, are finally ready to buy a home of their own. However, financing that dream can still be a challenge for many. Since the financial meltdown of 2008, getting a home loan is more difficult than it once was.

If you are wondering if you can afford to buy a home this year, one option you may want to consider is a loan insured by the Federal Housing Administration (FHA). FHA loans allow borrowers to obtain a mortgage without a big down payment and other costs.

What is a FHA Loan?

Like other government-sponsored loan programs, FHA loans are not made directly by the agency to borrowers. Instead, borrowers obtain loans through private lenders who ensure the borrowers meet all requirements of the program. The FHA loan guarantee reduces the lenders’ risk, encouraging them to make loans to borrowers with lower income or assets.

Since the loan is insured, the lender can offer you good terms including:

  • a low down payment (as low as 3.5% of the purchase price)
  • the financing of some closing costs (which means they are included in the loan amount)
  • lower closing costs

Another positive bit of news for potential FHA borrowers came in January 2015 when the FHA announced it was cutting the mortgage insurance premium (MIP) on FHA loans by half a percentage point, reducing the average cost of an FHA loan by $1,000 per year.

The Requirements

There are some restrictions, of course. FHA loans have a maximum loan limit that varies depending on the average cost of housing in a given region. (Learn more about FHA loan limits at  www.fha.com.) While less strict than conventional mortgages, you must still meet certain income levels in order to qualify and there will be additional paperwork to complete to participate in the program.

Also, as noted above, you will have to pay MIP as part of an FHA loan. This is different from conventional mortgages for which borrowers pay private mortgage insurance (PMI). On an FHA home loan, borrowers pay MIP for the life of the loan. (For conventional loans, PMI can be dropped if you have repaid a portion of the mortgage loan, usually 20%.) If you do have funds for a larger down payment available, you may be better off getting a conventional loan and avoiding or reducing these payments. Learn more about the pros and cons of FHA loans and get a guide to the requirements.

If you are interested in learning more about an FHA-backed loan, or what type of home loan might be right for you, let one of our experts help. Get a free consultation where we’ll help answer your questions and make sure you are on the right track. Or if you think you may be ready to take the next step, fill out our short home loan form to start your journey now!

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Lincoln Savings Bank, Member FDIC, Equal Housing Lender

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