An FHA loan is a popular mortgage lending instrument in today's market. It can help you secure the mortgage that you need if you are in the market to buy. The FHA is a government-backed program and it is designed to help the buyers of real estate. An FHA loan can offer many incentives that traditional loans may not have. Here are a few things that you need to know about an FHA loan.

Government Insured

The first unique aspect of an FHA loan is that it is insured by the FHA. This means that the FHA is taking on all of the risk for each individual loan that is written under its program. If a lender writes an FHA loan, they can feel much more comfortable about it. They know that if the buyer defaults, the FHA will pay them their money. Therefore, banks can be a lot more lenient on who they lend to. If you are on the border of qualifying for a traditional loan, you should be able to qualify for an FHA loan. You will still need to display some form of credit, however, the standards are much lower than with a traditional loan. 

Low Down Payment

With an FHA-insured loan, you can get by with a much lower down payment than normal. In fact, you can come up with as little as 3.5% of the balance of the loan as your down payment. Compared to other types of traditional loans, this represents a much smaller figure. You can borrow the money you need without having to spend years to save up for the down payment. This gets a lot of people that otherwise could not afford it, into the real estate market sooner. 

Competitive Interest Rates

Another benefit of going with FHA loans is that you do not have to compromise on the interest rate. Many times, you will be able to get a lower rate with this loan than you would with a traditional loan. If you have excellent credit, you might be able to find a cheaper rate elsewhere. However, for the majority of people, you will be able to find a great rate with the FHA. 

No Prepayment Penalty

With an FHA mortgage, you will not be subject to a prepayment penalty. This is great news if you do not plan on being in your house that long. Many people buy a house to live in it for three or four years and then sell it. If you have prepayment penalties, it could erase any profit that you make on the transaction. With an FHA loan, you can forget about that problem and sell the house whenever you choose. 

Mortgage Insurance

With FHA loans, you will have to pay a mortgage insurance premium. This is much like PMI with regular loans. With the FHA loan, you will have to pay a large upfront premium payment and a monthly payment as well. Therefore, this can amount to being more than PMI would on an equivalent mortgage. 


Does an FHA loan depend on your credit score?

When you are applying for an FHA loan, your credit score will play a role in the process. The lender will look at your credit score in order to determine if you are approved for the loan. In addition, they will look at your credit score in order to determine the rate at which the loan will be processed. With this type of loan, you do not have to have the same minimum credit score as you would with a traditional loan. You can have a lower credit score and still get approved, but it will depend on your score to some degree. 

Is it possible to get an FHA loan with bad credit?

It is possible to get an FHA loan with bad credit. FHA loans are known for providing lending opportunities for individuals who have less-than-strong credit scores. This does not mean that you will be able to get approved regardless of what your credit score is. Your credit score will be looked at, and it has to be above a certain range. However, the minimum credit score requirements for FHA loans are generally much lower than what you will find with a traditional mortgage loan. This enables people with credit problems to still get the loans that they need. 

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