FHA mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development. FHA loans are an attractive option, especially for first-time homeowners:

  • Generally easier to qualify for than conventional loans.
  • Lower down payment requirements.
  • Lower closing costs than conventional loans.

However, FHA loans are not always going to be the best option for you. There are a few downsides to going with an FHA loan, such as:

  • Unless you put 10% down, you can NEVER get rid of monthly mortgage insurance except through a refinance.
  • For people with good-to-excellent credit, the monthly mortgage insurance is much higher than what it will be with a conventional loan.
  • The loan limits are lower than conventional loans.
  • There is an upfront mortgage insurance premium (can be rolled into the loan, but it is still a cost) in addition to the monthly mortgage insurance premium.
  • Learn more about FHA loans. (Department of Housing and Urban Development)

What Is An FHA Loan?

The Federal Housing Administration created the FHA home loan for low-income buyers, as well as credit-challenged buyers. Only lenders approved by and meeting the standards established by the FHA are permitted to lend FHA loans (Austin) to borrowers, and all such loans are insured by the FHA.

Because they are aimed at low-income borrowers, the terms of FHA loans are more forgiving and the requirements for borrowers are lower, they are a popular choice with first-time buyers as well as those with less-than-ideal credit. Thus, when you're shopping for a mortgage it's recommended to see if you qualify for an FHA loan first.

What Are the Benefits of an FHA home loan?

– Lower down payment and credit score requirements. It's not uncommon for lenders to advertise different loans as having lower down payments, but none compare to an FHA loan: just 3.5% of a home's purchase price is all you need to put down for the loan, a significantly lower amount than what is considered standard. What makes this particularly attractive is that you can qualify with an FHA loan in Austin for as low as 580. It should be noted, however, that individual lenders can still require a a higher score to mitigate risk, so please don't view that as an absolute truth.

– Better Interest Rates

Interest rates on an FHA home loan are reflective of who they are intended for. What this means is that interest rates are lower across the board, further helping those with low income or low credit scores. Paying less each month will help keep money in your pocket for other expenses or just savings in general.

– Debt-Friendly

If you've ever applied for a home loan or mortgage before, you've likely encountered the problem of debt ratio. Most lenders require that your currently debts be no more than a certain percentage of your total income, usually 45%. Given the audience they are intended for, FHA loans allow for more leeway, with an acceptable debt limit of up to 57% of your income. However, you should still take your FHA loan payments into account alongside these debts when determining how affordable it really is.

Do I Qualify for an Austin FHA Loan?

Beyond what has been discussed so far, there are a few other requirements you need to keep in mind:

– You need proof of steady employment (including pays stubs, W-2s, etc.) and must provide two years of employment history
– You'll also need an FHA appraisal
– There is a two year waiting period if you've declared bankruptcy, and four years following a foreclosure
– The home you're buying must be used as your primary residence

With all of that said, there are more complexities than what can easily be described. That's why you should discuss FHA loan requirements with a trusted lender like Highlander Mortgage. We will do everything we can to provide you with an Austin FHA loan. Reach out to us today for more information or to schedule an appointment.