FHA loans can be a good loan program for many buyers; however it is not the only low down payment option.
Conventional 5% down financing is available, and in most cases, the mortgage insurance is much less than FHA — in some cases it may be 50% less!
So while FHA may offer a lower interest rate, the higher monthly mortgage insurance (as well as the upfront premium) will make the overall payment and costs higher.
However, there are some cases in which FHA may be the better option.
If you must have a non-occupant co–borrower (for example, a parent to co-sign for the loan, but will not be living in the house), FHA allows the use of their income to qualify.
Also, FHA is more forgiving on credit scores.
Conventional financing will charge a higher rate for scores below 720. You may put down as little as 3.5% on an FHA loan, and the money used can be borrowed or gifted funds from relatives.
Always consult your mortgage professional to determine the best loan option for your situation.
The above is a Mortgage Minute by Dan Murtaugh of Sandy Spring Bank. If you are interested in discovering the best mortgage solution for you, feel free to contact him. He and Sandy Spring Bank have many different mortgage types and options!
Thank you for this post about FHA loans, Dan!
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