FHA loans are mortgage loans that are guaranteed by the U.S. Federal government.
Originally they were given to people in more rural areas, but that is no longer the case.
There is a limit to how much your home can be worth to qualify for these types of loans. The limit for maximum house value has been raised and it can vary from state to state and county to county within a state. HUD has a website to check on mortgage limits for where you want to buy.
There are some really nice things about having an FHA loan.
You can get a good fixed rate without a high down payment. This is good if you don’t have much money saved and aren’t able to save enough for a large down payment.
Many banks or mortgage brokers will steer you to an FHA loan if your credit score is lower than what they want for a standard loan.
Another great thing about FHA loans is that they are transferable. So if you get older and want to just transfer the remainder of the loan to someone else that is possible. That is a nice little perk.
But, when looking into an FHA loan there are some things you need to keep in mind.
The appraisal for an FHA loan is more strict than for a conventional loan. So, if the appraiser thinks something isn’t right you will be required to get it fixed before the loan can go through. This is important to remember if you are wanting to buy a fixer-upper and plan to repair the home after you get it.
Another thing is the PMI. PMI is private mortgage insurance. You will have premiums tacked onto the loan payments until you have paid 20% of the principal of the house. Usually that is about 10 years time. The PMI is added to your loan payments if you don’t have a down payment equal to 20% of the home value. It is there in case of a loan default.
These loans can be a good thing, but you need to keep everything in mind if you go this route.