Determining If An FHA Loan is Right For You

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FHA refers to the Federal Housing Administration, a government organization dating back to 1934. Due to a high number of mortgage defaults and foreclosures during the Great Depression, the National Housing Act was passed by Congress, considered a part of the New Deal. The housing market was stimulated by offering a range of affordable loans.

Today, FHA loans remain a popular option for those seeking affordable housing. They are insured by the FHA, lowering the risk for the lender, enabling the lender to offer better terms. Borrowers can get a home loan for as little as 3.5 percent down. This can be a popular choice for those who want to put down less money than other types of loans, and are a viable option for those with lower credit and can’t afford the traditional 20 percent down payment.

However, FHA loans are strictly regulated. The property must meet standards of habitation, and if those standards aren’t met then it is the owner’s responsibility to make improvements. Borrowers have to pay a mortgage insurance premium, 1.75 percent of the total loan amount and a monthly MI payment. This must be paid either upfront during closing or included with their monthly mortgage payment. The borrower’s mortgage payment, fees, taxes, and insurance needs to be between 43%-55% of their gross income.

Despite these factors, FHA loans remains a popular option. If you would like assistance determining whether an FHA loan is right for you, Pacific Mortgage Group has team of professionals to help you explore your options. Please contact us and we will help you make the right financial choice.