If you’re a first-time homebuyer, you’ve likely heard of an FHA loan. Why do so many first-timers flock to FHA?
These loans, insured by the Federal Housing Administration, can be a great fit for new buyers because they allow low down payments (3.5%), good long-term interest rates and flexible qualifications. However, these affordable loans also include premiums (loan fees) and mortgage insurance for your lender to manage the risk on the loan. It protects your lender in case you default on your loan.
FHA loans are not exclusively for first-time homebuyers. The low down payment is a big draw for new buyers, but repeat buyers can also use FHA loans.
HUD cuts FHA mortgage insurance premium
As the housing market stabilized, FHA took steps to periodically reduce premiums. On January 9, 2016, HUD announced it would reduce FHA’s annual mortgage insurance premium by a quarter of a percent. FHA estimates the change will save new FHA-insured homeowners an average of $500 this year.
Why is this good news now?
Interest rates have ticked upwards in recent months. While still at historic lows, interest rates have a big impact on the short and long-term cost of a home loan, especially for new buyers. This premium reduction may help offset the small interest rate changes for today’s buyers.
FHA loans and down payment assistance
Even though FHA loans offer low down payments, you may not know that your FHA loan can also be combined with a down payment assistance program, helping you save even more. There are approximately 2,400 homeownership programs available across the country, including grants, forgivable loans, tax credits and more.
Shop your loan
Home loans aren’t one size fits all so be sure you shop your loan and interview multiple lenders to find your best fit. The updates to FHA loans may make it a more attractive solution, but there are many low down payment options available today. Keep in mind that if you are using a homebuyer program, you can pair them with a wide variety of loans.