An FHA loan provides a government-backed mortgage that offers flexible options for borrowers. Even those with previous homeownership experience may need to anticipate an extended period when buying a new home. Fortunately, FHA loans can help certain buyers realize their dream of owning a home with a reduced down payment.
What is an FHA Loan?
FHA loans are home mortgages backed by the U.S. Federal Housing Administration. Lenders, such as banks and credit unions, offer financing for home purchases with a reduced down payment requirement. Buyers can enter into homeownership with as little as a 3.5% down payment.
In contrast to conventional loans, where a smaller down payment results in the borrower having to obtain private mortgage insurance (PMI), FHA loans do not require PMI. PMI is a specific type of insurance that protects the lender in case the borrower is unable to make payments. The cost of PMI is added to the monthly payment until the loan amount reaches 20%. Despite not mandating PMI, FHA loans, being government-backed, typically undergo additional scrutiny during the loan application process.
How do FHA Loans work?
Utilizing an FHA loan allows homebuyers to acquire a property with a minimal 3.5% down payment, contrasting with the usual 20% requirement for most loans. Fixed-rate choices are accessible with terms spanning 30, 25, 20, and 15 years. Additionally, there is a 5-year adjustable-rate mortgage option. Borrowers enjoy the flexibility of paying off their mortgage at any time without facing pre-payment penalties. Should you have any inquiries, don’t hesitate to reach out. Our team of mortgage specialists is ready to offer thorough and comprehensive answers.
**Please note that OceanPoint Mortgage is not affiliated with or acting on behalf of, or at the direction of, FHA, VA, USDA, or the Federal Government.
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