All Coast Lending: Mortgage Company | Brokers & Lenders

FHA loans

If you’re concerned you may not qualify for a conventional loan, an FHA loan could be an option.

Because FHA loans are mortgages made by private lenders but insured by the Federal Housing Administration, the government guarantee may help you qualify for a mortgage you may not have been able to get otherwise.

But it’s important to know that not all applicants will be approved, and you might be required to make a 10% down payment if your credit score is between 500 and 579. With credit scores of 580 or higher, you might be able to make a down payment as low as 3.5%.

While FHA loans may seem attractive, it’s important that you consider the total cost of the loan when comparing it to other options (more on that below). So, while the qualifications are more flexible, when you tally up all the costs involved, including mandatory mortgage insurance for example, FHA loans tend to be a more expensive product over the life of the loan than conventional mortgages.

 

Best for

FHA loans can be a great option if you can afford a monthly mortgage payment but don’t have the credit score to quality for a traditional mortgage. They also may allow you to buy a home with a low down payment, if you qualify.

 

Things to watch out for

FHA loans can be more expensive than other types of home loans because the cost of the federal government’s guarantee is passed on to you. The FHA requires you to pay for mortgage insurance on all loans through its program. This is paid in two ways — an upfront payment made as part of the closing costs and a monthly insurance premium.

The upfront mortgage premium is 1.75% of the loan amount ($3,500 for a mortgage of $200,000, for example). The monthly premium is typically 0.85% of the loan per year, or $1,700 annually for a mortgage of $200,000. Unlike with conventional loans, you’ll have to go through a complicated process to cancel mortgage insurance on an FHA loan.