Buying a home for the first time is a dream come true, but while part of the fantasy is to pay everything in one lump sum, the reality is that homeownership is often the most expensive investment for the average American. That’s why loans offer to ease the financial burden and make it possible to unlock your dream home, and one of the most accessible types of mortgage is FHA loans.
What Are FHA Loans?
The Federal Housing Administration (FHA) is a mortgage insurer, which means any aspiring homeowner can apply for an FHA loan from different FHA-approved lenders. This is often the go-to choice among first-time homebuyers for its relatively lenient requirements, allowing low-to-moderate income borrowers with low credit scores a chance to settle down.
FHA loans also offer lower interest rates, so you only need to pay 3.5 percent of the down payment so long as you at least have a credit score of 580 or higher. For those with less than desirable credit scores between 500 and 579, you can still qualify for an FHA loan, though the catch is the down payment bumps up to 10 percent.
Understanding How FHA Loans Work
Seeing as FHA is an insurer, this means they are not the ones to lend you money but serve more as a bridge to provide you a loan from FHA-approved lenders. The lender will give the money, while the FHA guarantees it.
But because of the risks that come with borrowers who qualify for an FHA loan, they need to protect themselves by requiring you to purchase mortgage insurance and make premium payments to the FHA.
A Realistic Breakdown of the Timeline of Your Annual Mortgage Insurance Premium (MIP)
| Term | LTV Percentage | Timeframe |
| Less than or equal to 15 years | Less than or equal to 78 percent | 11 years |
| Less than or equal to 15 years | 78 percent to 90 percent | 11 years |
| Less than or equal to 15 years | More than 90 percent | Loan term |
| More than 15 years | Less than or equal to 78 percent | 11 years |
| More than 15 years | 78 percent to 90 percent | 11 years |
| More than 15 years | More than 90 percent | Loan Term |
The Bottom Line: FHA Loans Are the Go-to Choice for First-Time Home Buyers
As a home buyer, you have plenty of mortgage options to finance your dream living space, but it’s crucial to choose the right loans that suit your financial goals in the long run. FHA loans are one of the best options for first-time buyers thanks to their easy requirements, but it’s worth understanding how it works so you can determine whether it’s right for you.
How Can We Help You?
If you’re looking for Sacramento mortgage lenders, you’ve come to the right place. Mortgages and loans can be tricky for many homeowners, but with the help of Hawkins Home Loans, getting a loan would be a breeze.
Whatever you need — whether you want to buy a home, refinance, or need cash from your home equity — we are your online source for stress-free loan processing. With our incredibly low rates and amazing service, we’ll help you reach your financial goals faster. Learn more about our services today!
