An FHA mortgage loan is insured by the Federal government. If the borrower defaults on the loan, the U.S. Department of Housing and Urban Development (HUD) will pay the lender and take possession of the property. This means lenders don’t have to worry about being stuck with real estate that may sell at a loss. Thus, they can offer loan terms and conditions that make it easy for people who would be unable to obtain a conventional mortgage loan to buy a home. These terms include lower credit score limits, a lower down payment, and a cap on closing costs.
FHA loans also offer some great benefits you may want to consider even if you would qualify for a conventional mortgage loan. FHA loans have a lower base interest rate than conventional loans. If you have a good credit score and a low debt-to-income ratio, you may be able to get a lower rate with an FHA loan than a conventional loan. An FHA loan can also expand your property purchase options. Mortgage lenders won’t approve a conventional mortgage loan for a property that needs repairs. They also won’t provide an additional loan for renovating your new home. An FHA 203K loan, on the other hand, will allow you to not only buy a “fixer-upper” property but even loan you the money to do so.
Why the Lender Matters
While all FHA loans are government-backed, the terms, conditions, and amenities offered with the loan vary depending on which lender you work with. Your interest rate is determined by the lender, not the government, and some lenders may offer lower rates than others. Some lenders even offer financial assistance with down payment and closing costs, which can save you thousands of dollars.
On the other hand, some lenders offer terms and conditions you’d rather avoid. You’ll want to make sure your lender locks your interest rate for a set period of time while you shop for a home. Otherwise, you may be in for an unpleasant surprise if it takes longer than you’d anticipated to find a house.
What to Look for in a Good FHA Mortgage Lender
The best FHA mortgage lenders have been in business for a long time. They have a license to do business in your state and have experience providing FHA loans to aspiring homeowners of all ages and walks of life. They also have a winning track record for closing FHA loans. Furthermore, your lender should be able to offer flexible options to meet your exact needs. If you’re considering a property that has a manufactured home, make sure your lender is able to provide a loan for a home of this nature. If there is a chance your new home may need repairs or renovations, ask about the availability of an FHA 203K loan.
Consider your lender’s attitude and willingness to help, answer questions, and provide information in a timely manner. A good lender will not only be knowledgeable but also eager to help you qualify for a loan. Ask your lender for a good faith estimate (GFE) so you’ll know how much you’ll need to pay for title insurance, closing costs, fees, etc. The estimate should also give general information on your mortgage rate. The numbers can change up until you receive final approval for the loan; even so, they’ll give you a general idea of how much you’ll need to spend out of pocket.
It’s a good idea to shop around when you’re looking for an FHA loan. You can also ask a mortgage broker to shop around on your behalf. The broker’s services are free for you because the lender who grants your loan will pay the broker’s fees. Compare the terms and conditions provided by each lender, not only the final costs. Small details such as assistance with closing costs, a fast closing time, the availability of a certain FHA loan type, or exceptional customer service should also be taken into account. They can spell the difference between a problem-free home purchase experience and a stressful one.
FHA mortgage lenders can help you save tens of thousands of dollars when you buy a new home. They can also make it possible for people who don’t qualify for a conventional loan to successfully purchase a house. However, you should never choose a lender without careful research. Make sure the lender is honest, experienced, and helpful. You’ll also want to find out as much as you can about your loan’s terms and conditions to make sure you’ll be happy with the final contract once you find the home of your dreams. Taking time to find the lender who can best meet your needs is well worth it as it saves you a lot of time, hassle, and expense in the long run.
If you or anyone you know has questions about financing or the current housing market, your expert Los Angeles mortgage brokers at Peak Finance are here to help. Contact us today at [email protected].