NEW YORK (MainStreet) - The government wants Americans to buy a home. That's why the Federal Housing Administration offers programs to help people get their foot into the door of the housing market. But is an FHA loan right for you? What are the requirements to get one? And are there other lending products on the market that are going to make more sense for you and your family? Read on to find out.
Who Is an FHA Loan For?
"By and large, FHA loans are for people without a lot of cash, who don't have other options," says Mike Sullivan, director of education with Take Charge America. "Even though there are other lending options out there, this is still the fallback for people with poor credit."
For example, Sullivan points out that the base FICO for a 3.5% mortgage is 580. What's more, someone with a FICO score of 500 can often qualify for credit products with 10% down. This makes the FHA loan attractive for those who have particularly poor credit, but want to repair that in part by getting their foot in the housing market.
While Sullivan is quick to point out that it's mostly a product for people with poor credit, he also says that it's not a bad deal. The main problem is the 1.75% mortgage insurance on the total purchase price, which has to be paid up front or rolled into the cost of the loan.
"It makes borrowing money very expensive," he says. To that end, Sullivan urges people to look for the cheapest deal possible to help get them into a home. That might be an FHA loan or it might not be.