Friday, February 6, 2015

Is an FHA Mortgage the Right Fit for You?

Before you decide which house to purchase, you first must figure out which financing option is best for you. There are three main different types of mortgages with subcategories to each one. The three main types of mortgages are FHA, VA, and conventional. This article will explain exactly what an FHA mortgage is, and will lay out all of its benefits and negatives.

An FHA mortgage has several benefits for consumers. The largest benefit for most people is the low down payment requirement. A conventional mortgage usually requires a down payment minimum of twenty percent of the purchase price. The FHA loan requires only 3.5 percent comparatively. This can amount to a much smaller down payment. For example, a conventional mortgage of $200,000 would require a down-payment of $40,000. With an FHA loan, you would only have to put down $7,000. That is a rather large savings.

Another benefit of an FHA loan is that they have lower credit standards than a conventional mortgage. With a conventional mortgage the credit requirements are usually quite high. Normally, they want a minimum score of 720. Occasionally, they will write for as low as a 680, but there are usually extenuating circumstances. Conversely, an FHA loan can be written with scores as low as 580 (most lenders will require a 640). With the more lenient credit requirements, many more people can qualify for a FHA mortgage, then with a conventional.

Another benefit is that closing costs are usually lower than with a conventional loan. Lower closing costs allow many home buyers to afford more home, or even to lower their total amount being put down. With less money needed for closing, many home buyers are able to invest that same money into their new home.

One of the drawbacks of an FHA mortgage is that it must be your primary residence. It cannot be a second home, or an investment property. If you are purchasing for either of these reasons, you must go with a conventional mortgage.

Another downside is that an FHA loan will include FHA mortgage insurance premium (MIP) on the loan. This mortgage insurance is usually half of a percent each year of the total loan amount. This is paid monthly and is included in your mortgage payment.

If you have great credit, a large down payment, or are purchasing a second home, an FHA mortgage is not for you. In these cases, a conventional mortgage will be the best option. An FHA mortgage is the right choice for many home buyers and is most definitely a great loan program.

Visit Pleasant Valley Home Mortgage [] for all of your mortgage needs. They are a "Top 25 Tech Savvy Lender" and are America's #1 Discount Mortgage Lender.
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