When it comes to real estate, the sooner you jump in, the better. Instead of renting that will never get you any equity, purchase a home that will not only earn you equity but may even help you generate income. When you are young, you might think that the ceiling is too high, because you are expected to put down at least 20%. For most conventional loans, that is true. With an FHA loan, a government-backed loan, you don’t have to put down 20%. The fact that you can get into a home sooner makes the dream of homeownership a lot closer to reality.
Before you think that an FHA loan is the answer to all your dreams, know about the rules before you jump in.
In a conventional loan, if you put down 20% or more on your home, you may not have to pay mortgage insurance. Also, the more you pay toward the house, the less likely you will have to pay mortgage insurance. An FHA loan is different. Because you are not putting down as much of a down payment, the lenders need insurance to protect them. The insurance protects the lender on loans that default. Even when you get past the 20% amount, an FHA loan will require mortgage insurance.
You might have to be a little more picky with the house you buy with an FHA loan. There are strict guidelines a home must meet to qualify for an FHA loan. The most important part of that is a house inspection by a licensed, HUD-approved appraiser that will do a health and safety inspection. An inspector will look at the roof, plumbing, electrical, AC unit, foundation, and other vital aspects of the home.
When you buy a home with an FHA loan, you might get a home that needs a lot of repairs or updating. When you get an FHA loan, make sure the loan allows for renovations. Some of them don’t, so talk to your lending professional before signing the loan, especially if you will want to use the equity to make repairs. Some FHA loans do allow for them, so make sure you are signing the right FHA loan.
FHA loans are another option for buyers who don’t necessarily meet the requirements of a conventional loan. Whether it is because of the inability to pay the typical 20% down payment for a loan, or because their credit level is less than a lender would prefer it, you do still have to have a decent credit score.
While there are a lot of requirements to get a loan for a home, an FHA loan can be an excellent option for those that want to get into a house and start building credit and equity instead of throwing a lot of money renting.