After the housing market collapse during the Great Recession, many homeowners found themselves struggling when home values dropped dramatically. Foreclosures and short sales rose sharply as millions of Americans could no longer afford their monthly payments, with unemployment rates doubling. As a result of this crisis, FHA mortgage loans became a more attractive option to get into a new loan with as little as 3.5 percent down and lower interest rates.
FHA loans, backed by the Federal Housing Administration, enable potential new homeowners to qualify for mortgages who otherwise may not be able to. The caveat is that the homeowner then pays a monthly mortgage insurance in addition to the principal and interest, which helps protect the FHA in the event a borrower must foreclose on the loan.
Applying for an FHA loan can help you build equity in a home with less than a 5 percent down payment upfront, not possible with conventional loans. Once you've established 20 percent equity in the home's value, however, you have the ability to refinance into a conventional loan and quit paying that monthly mortgage insurance. Instead of paying the extra insurance, you can apply that money towards the mortgage balance itself or keep it in your bank account. Sounds like a no-brainer, right?
If you have been building up your home equity with an FHA loan and are interested in switching to conventional, call a Vertex loan officer at 877-939-0339 to get more information. If you can save money on skipping mortgage insurance, why not? On the flip side, if you are interested in buying and can only qualify through an FHA loan, interest rates remain at the best they've been in over a year. Don't waste time on taking advantage of these extremely low rates, because they won't last forever.
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