What are FHA home loans?
FHA loans are a type of mortgage designed to help borrowers with low-to-moderate income or low credit purchase a home in Montana. The loan is available through private mortgage providers (mortgage companies, banks, and credit unions) that are approved by the Fair Housing Administration (FHA). In return for issuing the loan, the FHA assures the lending agency it will be repaid if the borrower were to default on their mortgage.
FHA loan quick view
- Down payment as low as 3.5%
- Low credit score qualifying
- No income limits
- Allows for a non-occupant co-borrower to help you qualify
- 6% maximum seller contribution
- Properties must meet HUD guidelines
- Mortgage insurance required and may be financed into the loan.
- Low closing costs
- Flexible requirements
- Simple & secure online application
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How are FHA loans different from conventional loans?
FHA loans have more relaxed qualification requirements than conventional mortgages, making it easier for many borrowers to qualify. Borrowers with FICO scores of 580 or higher just need a 3.5% down payment to qualify. Those with a lower score of 500 – 579 may even qualify with a higher minimum down payment of 10%.
Are FHA loans only for first-time home buyers?
No! Since many first-time homeowners have low credit and small down payments, FHA loans are a great fit. Repeat buyers or borrowers looking to refinance can also use an FHA loan so long as they meet the minimum requirements.
Advantages of an FHA loan
The lower credit score minimums and higher debt-to-income ratios used to qualify borrowers for FHA loans make them an attractive option to many home buyers. The down payment requirements are low (as low as 3.5%) and the money can come from a gift from a family member or through a grant – something conventional loans won’t allow.
Disadvantages of an FHA loan
Borrowers need at least a 3.5% down payment to quality for an FHA loan. Regardless of how much you have for a down payment, you’ll still need to pay both an upfront and annual mortgage insurance premiums (MIPs). The one-time upfront MIP payment is equal to 1.75% of the loan amount and you can finance it into the loan. Monthly MIP payments range from 0.45% to 1.05% of the base loan amount and will last either 11 years or the life of the loan depending on the length of the loan and the amount of down payment made. The loans can only be used for primary residence real estate.
Who should consider an FHA loan?
Borrowers interested in buying a home with low credit scores who can manage at least a 3.5% down payment are excellent candidates for an FHA loan. However, due to the monthly MIP payments, those with sizeable down payments or higher credit scores may be better off going with a conventional mortgage. Speak with a local mortgage lender to see whether a conventional or FHA loan would be best for your unique financial situation.