An FHA mortgage is a home loan that is insured by the Federal Housing Administration (FHA), a government agency within the U.S. Department of Housing and Urban Development (HUD). FHA mortgages are designed to help first-time homebuyers or those with low-to-moderate incomes, credit challenges, or who have limited funds for a down payment, to become homeowners.
One of the main advantages of an FHA mortgage is that it allows borrowers to make a down payment as low as 3.5% of the home's purchase price. This can be especially helpful for first-time homebuyers who may not have a lot of money saved for a down payment. In addition, FHA mortgages have more lenient credit requirements compared to conventional mortgages, making them more accessible to borrowers with lower credit scores.
Another advantage of an FHA mortgage is that it requires a lower monthly mortgage insurance premium (MIP) compared to a conventional mortgage with private mortgage insurance (PMI). The MIP is a fee that is added to the borrower's monthly mortgage payment to protect the lender in case the borrower defaults on the loan. The MIP can be paid upfront or financed into the loan, depending on the borrower's preference.
An FHA mortgage is also more flexible in terms of property type. Borrowers can use an FHA mortgage to purchase a single-family home, a multi-family home, a manufactured home, or a condominium.
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