One of the most important aspects of the American dream is the ownership of a home. Despite the ups and downs of the economy in the last two decades, there are plenty of options available for the average American to achieve their dream of buying their first home. One such option is the FHA loan.

What is an FHA loan?
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). Conventional loans generally require stable credit ratings, along with a laundry list of other stringent requirements. FHA loans, on the other hand, allow for lower down payments and credit scores while providing more flexibility concerning debt ratios. These programs are also open to first-time homebuyers.

How do they work?
FHA loans are provided by lending institutions and banks. The Federal Housing Administration’s role in this is to insure the loan themselves. The FHA, essentially, would be reducing the financial risks lenders usually deal with. That is why down payments can drop from your average 20% to 3.5% on an FHA loan. The interest rates might also be incredibly competitive, depending on the circumstances.

The caveat here is that, depending on where you live, the FHA might limit how much you are allowed to borrow. For example, the maximum FHA loan for a single-family home in a low-cost county is $331,760. In places with more expensive housing markets, this might rise to $765,600.

If you want to find out the upper limit in your area, use the search engine offered at the website of the Department of Housing and Urban Development (HUD).

What are other things I need to know about FHA loans?
You will have to pay a mortgage insurance premium (MIP) in exchange for the FHA’s guarantee on your loan. More often than not, this might make an FHA loan appear pricier than it actually is. Typically, this amounts to 1.75% of the purchase price and can be paid in cash or be financed as part of the mortgage upfront.

If the MIP has been financed as part of the mortgage, you might expect to pay anywhere from 0.45% to 1.05% per year, depending on the loan amount and the duration of the mortgage.

If you put any less than 10% down on your home, however, these premiums never go away, at least until the entire loan is paid off. Other instances when the MIP can end is if you refinance into a non-FHA loan or sell the property.

It is also possible to find both fixed-rate loans and adjustable-rate FHA loans. Either could give you better options depending on your financial situation.

In conclusion
When thinking about fulfilling your dream of home ownership, it is important to consider every financial option you might have. Among the best solutions for first-time homebuyers and those who are still working on their credit are FHA loans. These loans are there to give options to anyone dreaming of settling down in a home of their own.

If you are in the market for your first home or a new one, Cross Timbers Mortgage would love to work with you to see if an FHA loan would be the right mortgage solution for your specific financial needs. Please contact us or apply now at