An FHA loan is a home loan that’s backed by the Federal Housing Administration. Banks and credit unions issue the loan and the FHA provides the backing, which means that if you can’t pay the mortgage, the FHA pays the lender instead. Designed for low- to moderate-income borrowers, FHA loans require smaller down payments than conventional loans and can work with low credit scores.
Are you ready to buy your first home? Working with limited income or money for a down payment? FHA loans have been helping people buy homes, whether their first or their fourth, since 1934, and this option could be the right solution for you.
FHA Loan Limits
Some FHA home loans have a loan value cap based on location, but keep in mind that the typical FHA candidate may already have financial limits. That makes this less of an issue.
What are the Benefits of an FHA Loan?
FHA home loan programs typically help first-time homebuyers, seniors or others with limits on what they can afford. FHA home loans offer the following benefits:
- A low 3.5% down payment
- Flexible income and credit requirements
- Low closing costs
Applying for an FHA Loan
FHA loans come in many varieties, which means any one of them could fit your needs. After you determine your down payment, consider your credit score, and compare rates, you can pick the right one. These are the different types of FHA loans:
FHA Fixed-Rate Home Loans
There are multiple types of fixed FHA mortgage rates, both of which offer the same rate throughout the life of the loan:
- 30-year fixed rate FHA
- 25-year fixed rate FHA
- 20-year fixed rate FHA
- 15-year fixed rate FHA
Either option offers the same interest rate stability, but the 15-year fixed rate FHA gives you greater power to move. With a higher monthly payment, you build up more equity in the house sooner. This means you can use proceeds from a house sale to make a bigger down payment on a future purchase, making it a smart long-term solution. A 30-year fixed rate FHA is the better option if you don’t plan on moving any time soon, or at all. Senior citizens often go this route when they look to downsize.
FHA Adjustable-Rate Mortgage
An FHA adjustable-rate mortgage (ARM) lets homeowners pay a low introductory interest rate for the first few years, then move to a new home before it adjusts, possibly upwards. If you know you want to buy a starter home that you will leave in a few short years, then an ARM could make sense for you. PrimeLending offers the 5-year hybrid ARM (fixed for the first 5 years, change annually after that, annual cap of 2 percentage point and a lifetime cap of 6 percentage points.