Essential Mortgage

FHA LOAN

FHA loans are just one of the many home loan options we’re proud to provide here at Essential Mortgage. Offering low down payments, affordable mortgage rates and less-stringent income and credit requirements than other loan programs, they’re a good option for low- and middle-income earning homebuyers.

Read on to learn more about FHA loans, or reach out to the Essential Mortgage team to see if one is right for you.

WHAT IS AN FHA LOAN?

FHA loans are mortgages that are guaranteed by the Federal Housing Administration, more commonly referred to as FHA. They have lower credit score requirements than many other types of mortgage loans, and their down payments go as low as 3.5 percent.

Generally, FHA loans are a popular financing option for first-time homebuyers, as well as those with less-than-perfect credit.

QUALIFYING FOR AN FHA LOAN

Most homebuyers will find FHA mortgage loans are easier to qualify for than other mortgage types. The minimum credit score on an FHA loan goes as low as 500 (as long as you make a 10 percent down payment). If you want to make a lower down payment (at least a minimum of 3.5 percent), then you’ll need at least a 580 credit score.

You’ll also need a debt-to-income ratio of 43 percent or less. This means your mortgage, credit card debts, and other monthly obligations come out to 43 percent of your income or lower. In some cases (and depending on your credit) a DTI of up to 50 percent could be possible.

Finally, if you’ve had a bankruptcy or foreclosure, at least one year (bankruptcy) or three years (foreclosure) will need to have passed before applying.

WHO SHOULD GET AN FHA LOAN?

FHA loans can help any Louisiana resident buy a home, but generally, they’re best suited for first-time buyers, buyers with less-than-perfect credit and those who are a little more financially strapped. They are also a good choice if you have a significant amount of monthly debts to your name.

BENEFITS OF FHA MORTGAGE LOANS

There are several advantages to FHA home loans, particularly when compared with other types of mortgages. For one, they have very low credit requirements. This can make it easier to qualify and lower the barrier to homeownership for many.

FHA loans also offer competitive interest rate and low down payments, making a Louisiana home purchase even more affordable. If you’re looking to rehabilitate a home in disrepair, there are even specialized FHA loan programs to help you do this.

Advantages of FHA loans:

  • Low interest rates
  • Low down payments (as low as 3.5 percent)
  • Minimal credit requirements
  • High debt-to-income ratios (as high as 50 percent)
  • Offer extra funding for renovations and repairs

DRAWBACKS OF FHA MORTGAGE LOANS

Despite their many benefits, FHA home loans aren’t without their drawbacks. For many buyers, the FHA’s required mortgage insurance is the biggest downside, costing 1.75 percent of the mortgage amount up front and then another 0.45 to 1.05 percent annually for the rest of the loan.

Another downside is that FHA loans have lower loan limits than other mortgage options, so they can’t help you finance a high-price property. In most parts of the country, the cap on FHA loans is $314,827.

Disadvantages of FHA loans:

  • Require mortgage insurance
  • Low loan limits
  • Only available through FHA-approved lenders

IS AN FHA LOAN RIGHT FOR YOUR Louisiana HOME PURCHASE?

FHA loans can be a great option for many homebuyers, but they’re not right for everyone. Want to discuss using an FHA loan for your Louisiana home purchase? Then reach out to the Essential Mortgage team today. We’ll help you determine the best possible financing option for your goals.