5 Things Every First-time Homebuyer Should Know About FHA Loans

So, you want to buy a house, but every time you read the fine print or research mortgage options you see FHA loans mentioned. It sounds like a great deal, but what is it? And what’s the catch?

Well, because of FHA loans, we at Tradition Homes can offer great deals, like the one we have going on currently, where we can get you into a home for $615.00 per month with a 600 credit score. How? Because we base those figures on FHA loans, which allow lower down payments, offer lower interest rates, and are tailored to middle income families.

What do you need to know about this program?

1. The Federal Housing Administration (FHA) doesn’t actually make loans. They insure loans made by approved lenders. Why does that matter? Because an insured loan, with the government’s backing, is less likely to result in a default and loss of money for the lender.
    
2. The minimum down payment for an FHA-insured loan is 3.5%. That’s right. 3.5%. Before you get giddy, remember that this can get you into a home, but can often prove problematic if you need to sell a home in a soft market.
    
3. Buyers with weak credit can qualify for an FHA loan if they have a stable income and a stable employment record.
    
4. This is a big one: FHA loans require owner occupancy. Because FHA loans are designed to get people into homes and to generate stable neighborhoods, they do not allow borrowers to create investment opportunities. However, there is always the possibility that you could be transferred for a job, or have to move within a few years of buying your home. If your house does not sell for some reason (soft market, upside down mortgage, etc.), you may be in a pickle. Talk to your lender before you sign the papers to find out what your options are.
    
5. FHA requires a type of insurance called Mortgage Insurance Premium (MIP). Conventional loans require Private Mortgage Insurance (PMI) if the down payment on the loan is less than 20%. Most, if not all, FHA loan homebuyers pay far less than 20%, so be aware of this extra monthly expense.

If you have questions or concerns about borrowing with an FHA-insured loan, feel free to call a preferred Tradition Homes mortgage lender to talk about your options. For further research, you can also visit the FHA page on the HUD website or Realtor.com.

To learn more about how you can get into a Tradition Home for a low monthly payment, click here for information about homes in the Greensboro area or here for information about homes in the Winston-Salem area.