What is an FHA Mortgage Loan?

Aside from luxury watches,  upscale jewelry, and flashy cars, houses are among the biggest investments people make. What makes them such great investments isn’t  only because of how functional and how necessary a shelter is, but because of how expensive homes are nowadays. Reports even dictate that the younger generation—millennials to be specific—haven’t exactly been the best homebuyers, compared to Generation X. Whether it be the convenience in renting or the polarising economy, the rise of home purchasing isn’t as steady as many expect it to be.


FHA loan definition and history


Luckily, loans still exist, and as long as you have your finances intact and have good judgment, loans can very well work to your advantage. A winning home loan option is one that is offered by the Federal Housing Administration (FHA). This home loan initiative was started in 1934 fundamentally to help boost home construction and to help lessen unemployment. To this day, the FHA has been a strong force of empowerment in the name of home acquisition, as it has already helped millions of families.

Conventional mortgage versus FHA loans: Are their differences significant?


  • Attainability


Probably the most significant difference between conventional mortgages and FHA loans is their attainability. Whereas the credit score base of a conventional loan is 620 or more, the FHA may accommodate borrowers with as low as a 500 credit score.


  • Down Payment


Their down payment is also one obvious distinction. Usually, conventional loans can start as low as 5% and as high as 20%. The FHA, on the other hand, can be gracious enough to demand only 3.5% of a down.


  • Credit Score Requirement


Under the FHA, those whose credit scores are 580 and up can put in the minimum down payment requirement, but those whose credit scores are anywhere between 500 to 579, will need to put in a 10% down. Meanwhile, conventional loans require a credit score minimum of 620 or higher, depending on the lending company.  


  • Loan terms


When it comes to loan terms, conventional loans may offer more flexibility as they can come in 10 15, 20, or 30, years. Comparatively, FHA loans come in two choices: 15 or 30 years.  


  • Interest


Another winning feature of an FHA loan is said to be its interest. Conventional loans may offer variable and fixed rates, while FHA mortgages only provide a fixed rate.


  • FHA loan limits


In areas considered to be high-cost, the FHA ceiling is $679,650, while its floor is $294,515. These rates are already increases considering that they used only to be $625,500 and $271,050.


  • Mortgage Insurance


For conventional loans, borrowers are obliged to pay a Premium Mortgage Insurance worth .5% to 1% of the entire home loan amount per year, while under the FHA, the insurance comes in two formats: an upfront premium that’s 1.75% of the loan amount, and another annual premium that’s 0.45% to 1.05%


Who are FHA loans best for?


FHA loans are most suited for debtors with not much cash in their savings account enough to make a down payment. It’s also best to remember that individuals who do not have stellar credit scores will not be accommodated under the terms and conditions of conventional loans. FHA mortgages are usually the go-to home loan option of several first-time home buyers, because of more lenient requirements. Repeat home buyers may also find this home loan option ideal since the FHA caters primarily to those with moderate salaries. Moving forward, one of the many conditions under an FHA mortgage is that the home at hand must be the primary residence of the home buyer and not just an investment house.


Furthermore, there are a dozen other reasons that make FHA loans a lot more sought-after in the market for a variety of people.


Here are a few of the many FHA benefits:


  • Low Down payment


As you can already tell, 3.5% may be a far departure from a conventional loan’s 5 to 20% down. That means those who have enough money to put in only for a down payment and a few additional fees may already start building equity sooner.

  • Attainable requirements

Compared to conventional loans, FHA loan standards are easier to meet because this particular loan program is backed up by the government.


For more details concerning FHA loans, click the link!


By: Karissa