If you wish to own your own house you need to apply for a home loan or mortgage.
In a mortgage, there are two important components of the mortgage payment—principal and interest. The principal refers to the loan amount. Interest is an additional amount (calculated as a percentage of the principal) that lenders charge you for the privilege of borrowing money that you can repay over time.
During your mortgage term, you pay in monthly installments based on an amortization schedule set by your lender. In this article, we discuss one of the types of home mortgage the Government-Insured Federal Housing Administration (FHA) Loans.
FHA loans are usually granted to low-to-moderate-income buyers purchasing a house for the first time.
This loan is ideal for those who have low income since borrowers can put down as little as 3.5% of the home’s purchase price. Also, compared to other types of loans FDA loans have more relaxed credit score requirements.
While it is an ideal loan for most borrowers, the FHA doesn’t directly lend money; it guarantees loans by FHA-approved lenders. Another bad side about this loan is that all borrowers pay an upfront and annual mortgage insurance premium (MIP)—a type of mortgage insurance that protects the lender from borrower default—for the loan’s lifetime.
Anyone who wishes to avail of this type of loan needs to have a FICO score as low as 500 to qualify for a 10% down payment and as low as 580 to qualify for a 3.5% down payment.
However, if you are a member of the U.S. Department of Veterans Affairs you can have this loan without the need for a down payment. Now that you already have an idea about FHA loans, it’s time to know more about the conventional loans which will be discussed further on the next page.