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Is an FHA Loan Right for You?

scottsdale home photoFHA loans are mortgage loans that are part of a government loan program run by the Federal Housing Administration, which is part of HUD (the U.S. Department of Housing and Urban Development).  The FHA has been regulating and insuring mortgage loans since 1934.  Originally conceived as a program to assist low-income Americans with buying homes during the Great Depression, today the FHA is the single largest insurer of residential mortgage loans.

First-time and younger homebuyers are some of the biggest beneficiaries of FHA loans given the maximum loan limit imposed by the HUD/FHA program.  This limit does vary by state.  In Arizona, and Maricopa County specifically, the maximum FHA loan amount is currently $279,450 for 2017.  The FHA loan permits homebuyers to obtain a mortgage up to this amount with only a 3.5 percent down payment of the purchase price (compared to the standard 5 percent with a conventional loan).

Other beneficiaries of FHA loans are those with lower credit scores.  Potential homeowners with credit scores ranging from 580 to 600 may be eligible for FHA loans.  The FHA guidelines are also much more lenient with potential homeowners as the FHA permits monetary gifts from family members as well as local down-payment assistance programs and state grants.  Moreover, FHA loans permit non-traditional credit references such as insurance, utility or rent payments if you haven’t yet established solid credit.

If you’ve experienced a short-sale, bankruptcy or foreclosure, you may be able to purchase your next home much sooner under the FHA loan guidelines.   These guidelines do also include requirements such mortgage insurance premiums (which increase the overall cost of the loan as they are financed into the loan amount).  Moreover, monthly mortgage insurance is permanently added onto the life of the loan, versus a conventional loan which will curtail the insurance once 78% of the loan payment is reached.  Finally, FHA loans may only be used to purchase single-family homes and townhomes, and not condominiums (unless the condo community is FHA-approved).

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