Loan Options for Buying or Refinancing a Home:
FHA Loans
How FHA loans work
The FHA guarantees all FHA loans. What that means is that if the borrower defaults on the loan, the FHA will pay the lender the remaining balance on the loan. That guarantee makes FHA loans a low-risk option for lenders, which in turn means that lenders tend to be more flexible with their FHA loan lending requirements than they would be for their more conventional loans. Because of those lower requirements, people who may otherwise not be able to qualify for a conventional loan can still get approved for home financing through an FHA loan.
Advantages of FHA loans
There are a lot of advantages to FHA loans. For one, you can still get approved for an FHA loan even if your credit rating is less than stellar. The lender will be reassured that even if you can’t pay off your loan, the FHA will be able to step in if needed. If this is your first time buying a house or if you are recovering from bankruptcy then an FHA loan may be right for you. Additionally, minimum down payment requirements are much lower with an FHA loan than with conventional loans, with the minimum down payment on an FHA loan just 3.5%. There are other advantages too, such as the fact that there is no prepayment penalty and FHA loans can be used for home improvement projects.
Types of Loans
A conventional home loan is any loan not guaranteed by a government agency. These are by far the most common type of home loans and, if your credit score is good, they are the easiest to apply for. Conventional loans are divided into two categories: conforming loans and non-conforming loans. Since non-conforming loans, such as jumbo loans, are discussed on separate pages of this site, below we will look exclusively at conforming loans.
Military members and their families may be able to qualify for VA home loans. Started by the U.S. Department of Veterans Affairs (VA) in 1944, these home loans have enabled countless veterans to qualify for attractive home financing options. VA home loans are guaranteed by the VA and offered by VA-approved lenders. For qualifying borrowers, they could be a good alternative to conventional loans.
If you are looking to buy a luxury or high-priced home then you may want to look into applying for a jumbo loan. A jumbo loan is a mortgage that exceeds loan limits set by the Federal Housing Finance Agency (FHFA). As such, while they are a conventional loan in the sense that they are not insured by any federal agency, they are considered a non-conforming loan because they exceed federally defined loan limits.
FHA loans are a popular home financing option, especially for people with poor credit scores or low income. These loans are insured by the Federal Housing Administration (FHA), which is a government agency, and provided by FHA-approved lenders. While FHA loans are available to everybody, they are a particularly good choice for individuals who are having trouble getting approved for conventional loans.