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Thinking about buying a home? The mortgage you select will make a tremendous impact on your long-term finances. The difference of just 0.25% on your mortgage interest rate can compound into tens of thousands of dollars over the span of a 30-year loan.?
In other words: Think carefully about which mortgage you choose. Your mortgage selection is one of the most important financial decisions you'll make.
You may be wondering whether or not you should get an FHA-backed mortgage. Let's explore that question further.
What's an FHA Loan?
First, let's clarify something: The U.S. Federal Housing Administration, or FHA, doesn't actually issue any loans.
The FHA?insures?loans on qualifying residential homes. The lender, however, is a financial institution such as a bank or credit union. (Many people, however, commonly use the shorthand "FHA loan" or "FHA mortgage" to refer to an FHA-insured loan.)
The purpose of an FHA-insured loan is to encourage home-ownership, even among people who may have small down payments or poor credit. It does so by federally insuring the loan, which defrays some of the risk from the lending institution.
The FHA will insure up to 115% of the median single-family home price in a particular geographic area, up to a national maximum of $625,500. In low-cost-of-living areas, the FHA has capped the maximum at $271,050.
The U.S. Department of Housing and Urban Development, or HUD, hosts a " calculator" on its website with which people can get an idea of the maximum FHA limit in their area.
There are no income limit qualifications for an FHA-insured loan.
Advantages of getting an FHA-backed loan
The benefits of an FHA-backed loan include:
Disadvantages of getting an FHA-backed loan
That said, here are some of the drawbacks of?taking out a mortgage?that's FHA-insured:
Should I get one?
An FHA-backed mortgage may be a great opportunity for an aspiring homeowner who doesn't have a large down payment. If you believe home prices in your area may rise rapidly, and you want to lock in a home at today's prices -- despite the additional mortgage insurance that you'll need to pay -- an FHA-backed mortgage might be a strong option.
And if you have tarnished credit and struggle to qualify for a conventional mortgage, an FHA-insured loan can be a good option.
If, however, you have good credit and a substantial down payment, you might be better served by forgoing the FHA-insured mortgage (and its pricey mortgage insurance premium) and opting for a conventional loan instead.
The No. 1 Way to Lose Your Wealth Without Even Knowing It
Youve fought hard to build wealth for you and your family. Yet one all-too-common pitfall could completely derail your dreams before you even know it. That's why a company?The Economist?hails as "an ethical oasis" has isolated?five simple questions?you must answer to ensure that your financial future is?really?secure.
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