As a loan professional, understanding the differences between the many types of mortgages is vital to your success. An FHA loan is one type of financing you should be very familiar with. This government-backed loan is one of the most popular forms of home financing. Here’s what you should know about who should get an FHA loan and how they differ from other mortgages.
What Are FHA Loans?
FHA loans are named after the Federal Housing Administration that backs them. If the borrower defaults on their FHA loan, the lender can count on the FHA to cover the debt. These loans were specifically created to create homeownership opportunities for people who may not have had them before.
Because these loans are more flexible in their terms, they are highly competitive. Even with the more lenient requirements, borrowers must, of course, still prove they have a reliable source of income through by W-2 forms, pay stubs, bank statements, and federal tax returns.
One of the downsides of having an FHA loan is mortgage insurance. Not only do borrowers have to pay mortgage insurance annually but they also have to pay an upfront mortgage insurance premium. While the annual mortgage insurance premium ranges from about 0.45% to 1.05% of the loan amount, the upfront cost of the insurance should be 1.75% of the loan amount.
Who Should Get an FHA Loan?
It’s easier to qualify for an FHA loan compared to many other loan types because they require lower credit scores and lower down payments. Closing costs can even be rolled into this form of financing. This is why they are so popular among first-time buyers who are just starting out and may not have much money to spend on a home or much credit history to assist them.
There are limits on how much money the borrower can take out for FHA loans. Not only do they change each year, but they also vary based on the location. For example, in 2021, if a borrower is buying a home in a high-cost area, they may borrow up to $822,375. On the other hand, if it’s a more inexpensive area, they may only borrow up to $356,362. Every county will have its own limits, so you should know the limit of yours before you recommend an FHA loan.
FHA loans must only be used for a primary residence. If the borrower is wanting to purchase a second home or investment property, they’ll need to seek some other kind of financing.
Enroll in All About FHA Loans with Mortgage Loan Training
If you want more in-depth info on what FHA loans are, you should consider signing up for the All About FHA Loans course with Mortgage Loan Training. This will give you the most important information you need to know about these loans and the type of borrowers who should get them. All of it’s based on the real-life industry experience of Stacey Sandlin. Don’t wait any longer to sign up. Enroll in this course today!
