FHA loans: Pros & cons of this mortgage loan type

If you’re a first-time homebuyer or simply searching for a mortgage loan to fit your financial standing, an FHA loan may be for you. With moderate requirements and longer loan terms, this mortgage type opens the door to homeownership for those who may be just beginning their financial journey. 

How does getting a FHA loan work?

A FHA loan is special, as it’s backed by the Federal Housing Administration, which falls under the umbrella of the U.S. Department of Housing and Urban Development.

To qualify for this loan, you have to meet at least the minimum qualifications, including a down payment of at least 3.5 percent of the total cost of the home and a credit score of 580 or higher. If you have a lower credit score, you may still qualify but may need a higher down payment. 

What is the downside of an FHA loan?

Even though FHA loans may be ideal for some first time buyers, there are some drawbacks to be aware of before taking on the loan. A down payment of less than 20 percent often means having to pay for mortgage insurance in addition to your mortgage payment to protect the investment of the lender. 

An FHA mortgage usually comes with limited loan term options, so for those with unique situations, a 15 or 30-year mortgage term may not fit what they are searching for. 

What is the benefit of getting an FHA loan?

Even though there are a few drawbacks to this loan type, there are many benefits as well. Lenders of FHA loans are often lenient on credit history, opening the door to borrowers with lower credit scores.

In general, interest rates are often fixed and come with better conditions in comparison to conventional loans.  

If you’re interested in an FHA loan, consider speaking with a lender to explore your options to find the best deal for your next home purchase.