It is no secret that many of the values our parents held are becoming increasingly more difficult to attain; whether it be building your wealth or buying a house, each goal will have a new set of trials and tribulations. As a first-time home buyer, the home buying process can seem like a daunting experience, and most are held back by the premise of finding a mortgage loan. In today’s blog, we will go over one of, if not the most reasonable home loan available to first time home buyers, the FHA loan.
What Is an FHA Loan?
An FHA loan is a flexible loan that appeals to first-time home buyers due to their lax credit requirements compared to conventional loans. Along with lower down payment requirements, and FHA loan allows consumers with “weaker” credit score to apply and acquire financing for their first home. Many FHA loans may only require you to put down as little as 3.5% for your loan which can be tempting for those who have not developed a large saving account or collateral profile.
The Negatives of an FHA Loan
Though the FHA loan is a wonderful vehicle for consumers to acquire their first home, there are some caveats that one must be aware of before jumping on the opportunity. The first thing you need to be aware of as a consumer is that while the FHA loan only requires 3.5% down, interest rates will be higher with the lower down payment. The second caveat that you need to be aware of is that every FHA loan will require mortgage insurance. Mortgage insurance is not the same as homeowners’ insurance and is put in place to protect the lender if the consumer fails to pay their mortgage. Mortgage insurance will add on an additional monthly payment and will require a premium payment at closing (an MIP).
How to Find and FHA Loan
Finding an FHA loan isn’t as difficult as most believe and really, it just takes some time to ask around. The first step would be to connect with your bank and speak with one of their loan officers. Having good standings with your personal bank can make acquiring an FHA loan seamless and simple if your bank has the availability. Now, if your bank is unable to offer you an FHA loan, you can always go to the HUD lender list and find lenders in your area. The HUD lender list is a government run website that can help find mortgage lenders by having you enter in some basic geographical information.