Here’s What You Should Know About Buying Your First Home With An FHA Loan
FHA loans are very popular among Knoxville’s first-time buyers. They offer flexible credit score and loan down payment options which make it possible for first-time buyers to get into home easily.
In this post, we’ll cover some important things you need to know about purchasing your first Knoxville home with an FHA loan.
FHA Loans Require A Low Down Payment
One of the most appealing aspects of an FHA loan is that they require a small down payment. With the help of an FHA loan, you can get into your first home with as little as 3.5% down.
For most first-time buyers, it can be hard to come up with a 20% down payment. For some, it could take months or years to come up with that money. This can be what makes FHA loans so appealing to first-time buyers. They can get into their first home with a very small down payment.
Flexible Credit Score Options
FHA loans also offer first-time buyers the ability to buy a home even if they don’t have perfect credit. Generally speaking, borrowers just need to have a FICO credit score of 580 or higher in order to qualify for an FHA loan.
For first-time buyers who are still working on improving their credit score, FHA loans offer a viable loan option in order to get into their first home. FHA loans offer more flexibility for those who have less than perfect credit and want to buy a home prior to their credit score improving to a higher level.
Keep in mind, requirements are based on what each mortgage company requires. Some lenders have more flexibility while others have tighter guidelines.
Down Fall: High Insurance Premiums
The high cost of mortgage insurance is one of the largest downfalls of FHA loans.
For mortgage companies, taking on a borrower with a low down payment can be a risk. It’s the mortgage insurance that helps protect mortgage insurance in the case should a borrower default.
There are two types of mortgage insurance that come with FHA loans. Here are the two types and their overall cost:
- Upfront mortgage insurance. It costs 1.75% of the loan paid at closing. It is possible to finance this into the loan amount.
- Annual mortgage insurance. This is paid on a yearly basis. It costs 0.45 to 1.05% of the loan amount and loan-to-value ratio depending on the loan term. This is paid monthly and is part of the mortgage payment.
While this is a costly part of an FHA loan, for many first-time buyers, the cost of FHA mortgage insurance is a necessary evil. Without it, these buyers wouldn’t necessarily be able to get into their first home with it.
Are you interested in buying a Knoxville home for sale? If so, please do not hesitate to let us know. Rick can be contacted at 865-696-9002 or via email at Rick@KnoxvilleHomeTeam.Com. Kati can be contacted at 865-696-1888 or via email at Kati@KnoxvilleHomeTeam.Com. Also, be sure to check out our Knoxville Home Search Page to see what homes are for sale in the area.