Mortgage Series: FHA Loans 101

Whether you are buying a house for the first time or the third time, you will likely be using a mortgage. A mortgage is a form of financing a property with a set amount of payments over a set period of time. Mortgages are also referred to as “liens against property” as the lender can foreclose on the property if the borrower does not pay. There are several different kinds of mortgages. In this second part of our mortgage series, we will be discussing FHA loans.

What are FHA Loans?

Unlike conventional loans, FHA loans are insured by the Federal Housing Authority (FHA). They also must be offered by an FHA approved lender who will make sure that you meet the qualifications. The decreased risk from the loan due to the backing allows FHA loans to be offered to people that otherwise would not qualify for a traditional conventional loan.

Differences between Conventional and FHA Loans

For a conventional loan, you normally need a credit score of at least 620 to qualify. In contrast, you can get an FHA loan with a credit score as low as 500. As far as a down payment goes, they are relatively similar, although FHA loans usually lean towards the lower end. FHA loans require a 3.5% down payment with a credit score of 580+ or a 10% down payment with a lower credit score. Conventional loans range anywhere from 3% to 20%. Unlike conventional loans that have a broad range of term lengths, FHA loans either come in 15 or 30 year terms. There is one important thing to consider: mortgage insurance. For a conventional loan, you can avoid paying any mortgage insurance provided you have a down payment of at least 20%. FHA loans require mortgage insurance in two ways. There is the upfront Mortgage Insurance Premium, which is 1.75% of the total loan amount and can either be paid upfront or calculated into the total loan. There is also an annual MIP ranging from 0.45% to 1.05% of the total loan and is paid monthly. These MIPs are used for your mortgage payments in case of defaulting.   You may have just realized that an FHA loan is right for you! In case you want to learn about your other options, stay tuned for the next part of our mortgages series where we will talk about USDA loans.   If you decide to sell your home or buy a new one, whether it is the first time or the third time, the Love Orlando Real Estate Team is here to help you every step of the way. With decades of combined experience, you will be hard-pressed to find a team that can serve you better in the Central Florida area.