If you’re considering buying a home, you may have heard of a 30 year FHA loan. But what is an FHA loan, and how does it work? Is it worth investing in a 30 year FHA loan instead of a 15 year FHA loan? In this article, we cover everything you need to know before committing to this type of loan.
What Is An FHA Loan?
An FHA loan is a home loan that is insured by the Federal Housing Administration. The FHA doesn’t actually lend money to borrowers. Instead, they provide insurance in case the borrower defaults on the loan. This makes it easier for borrowers to get approved for a home loan because they don’t have to worry about having perfect credit or a large down payment.
Benefits Of A 30 Year FHA Loan
No Income Limits
One of the best things about 30 year FHA loans is that there are no income limits. So whether you’re a first-time homebuyer or looking to upgrade to a bigger home, you may be eligible for this type of loan.
Lower Monthly Payment
Another benefit of 30 year FHA loans is that they have a lower monthly payment than 15 year FHA loans. This is because you’ve spread out the cost of the loan over 30 years instead of 15 years. If you’re looking to pay less each month, choosing a longer loan term may be the best option for you.
More Flexible Borrowing Requirements
30 year FHA loans also have more flexible borrowing requirements than other types of home loans. For example, you may be able to get approved for a 30 year FHA loan with a lower credit score or down payment than you would need for a conventional loan. This makes 30 year FHA loans a great option for first-time homebuyers or anyone who doesn’t have perfect credit.
Cons Of A 30 year FHA Loan
Longer Loan Agreement
One of the downsides of 30 year FHA loans is that you’re committed to a longer loan agreement. This means you’ll end up paying more interest over the life of the loan. So if you’re looking to save money, you may want to consider a shorter loan term instead. One of the services we provide is a true financial analysis for your specific situation. For example, what would your long term net worth look like if you took out a 30 year mortgage and invested the monthly savings somewhere else vs. a 15 year loan. Every situation is different which is why we provide that information to each of our clients.
Minimum Down Payment Of 3.5%
Another downside of 30 year FHA loans is that you’re required to make a minimum down payment of at least 3.5%. This can be a challenge for first-time homebuyers who may not have a lot of money saved up for a down payment. The good news with that though is that the entire down payment can be a gift. Additionally, there are down payment assistance options that are available.
Limits On the Amount You Can Borrow
Another downside of 30 year FHA loans is that there are limits on the amount you can borrow. The exact limit depends on the county where you’re buying a home, so make sure to check guidelines first before committing to an FHA loan.
Property Needs To Be Approved
Another thing to keep in mind is that 30 year FHA loans require the property you’re buying to be approved according to their standards. This includes an appraisal of the home to meet minimum standards for safety and habitability. Some apartment complexes or areas may not be eligible for 30 year FHA loans, so check before you apply.
Do I Qualify For A 30 year FHA Loan?
Now that you know the pros and cons of 30 year FHA loans, you may be wondering if you qualify for this type of loan.
Generally, you’ll need a credit score of 580 or higher to qualify for an FHA loan. You’ll also need a down payment of at least 3.5 percent of the purchase price. However, there are a few exceptions to these requirements.
Besides having a 580 credit score and down payment, you’ll need to have steady employment and show that you’re able to make your monthly payments. You’ll also need to have a valid Social Security number and be a U.S. citizen or permanent resident alien.
Apply For Your Next Home Loan At Fort Myers Mortgage Expert
If you’re ready to apply for a 30 year FHA loan, you’ll want to work with experts who know how to help you find the best loan for your needs. At Fort Myers Mortgage Expert, we can help you compare different loan options and find the right one for you. We’ll also walk you through the application process and answer any questions you have along the way. If you’re ready to get started, fill out our online contact form today!