A Guide to FHA Loans

By AFN Media

Whether you’re a first-time or a repeat homebuyer, or you need to refinance, an FHA loan may be worth exploring.

What is an FHA loan?

FHA-insured loans let buyers borrow money to purchase a home with a down payment of as little as 3.5%. In essence, it may make your mortgage more affordable if you don’t qualify for a conventional loan.

The FHA provides mortgage insurance on loans issued by private lenders, backing them financially in case borrowers default or do not honor the terms and conditions of their mortgages.

Only an FHA approved lender, such as AFN, can issue an FHA-insured loan.

FHA loans vs. conventional loans

FHA-insured loans come with competitive interest rates, smaller down payments and lower closing costs than conventional loans. Another FHA loan perk: A financial gift from a family member, employer or charitable organization can account for up to 100% of your down payment.

However, there’s one downside to FHA loans. Mortgage insurance on a conventional loan can be canceled after your loan is paid down to 80% or more of the appraised value of the home, but FHA mortgage insurance stays for the life of the loan.

You might also want to consider a USDA loan. The U.S. Department of Agriculture like the FHA offers guarantees on private loans, and it also does some direct lending on its own (income restrictions apply).