Homebuyers in Minnesota have several mortgage options to choose from, with the Federal Housing Administration (FHA) loans being among the most popular and sought after. There are many cases where they can serve as borrowers’ best bets, but like any other home loan, there may be better alternatives available.
To gauge whether you should go for one of these FHA loans in MN or not, here are the most important facts you should know about this type of mortgage:
It’s Backed by the Government
The FHA, a government entity, insures these loans, making it easier for borrowers to qualify for a mortgage. Specifically designed for first-time buyers, they provide much-needed assistance in financing purchases of primary residences. The fact that they are government-backed allows for the reduced down payment requirements, which in most cases, is just 3.5 percent. Those 30-year fixed mortgages are the most commonly offered FHA loan programs.
They’re Reserved for Buying Primary Residences
To qualify for an FHA-backed loan, the property needs to serve as the borrower’s main residence. There are also certain loan amount limitations. What is great about these loans is that qualified individuals do not have to make the 20 percent down payment usually required from those applying for conventional mortgages.
For example, the home you want to buy costs $250,000. With a conventional loan, you need to prepare a $50,000 down payment. With an FHA-insured mortgage, this goes down to $8,750. So, when waiting to save up enough for a 20 percent down payment is not an option for you, but you meet all the FHA loan qualifications, it is a good choice.
They Provide Individuals With Bad Credit a Chance to Own a Home
Note that FHA loans are also very helpful for people with bad credit. These government-insured mortgages provide a way for them to make the transition from renting to home ownership.
Yes, they may cost a bit more in the long run, especially with the need for mortgage insurance. But, if you really want to become a home owner and you know you will not be able to afford the 20 per cent down payment, consider an FHA loan.