Description of Massachusetts FHA Loans
FHA loans are government loans insured by the Federal Housing Administration (FHA). Massachusetts FHA loans are funded by FHA-approved lenders, not the FHA itself which only provides the mortgage insurance for these loans. FHA loans feature low down payments (3.5% of sales price), more lenient underwriting guidelines and generally do not penalize home loan borrowers for their credit score with higher mortgage rates like conventional loans do.
Massachusetts FHA loans are one of the best home loan programs available for first-time home buyers who generally do not have much money for a down payment or closing costs. FHA guidelines even allow the funds needed for the down payment to come in the form of a gift from a family member such that the buyer does not need to contribute any of their money. Closing costs similarly can be paid for by a gift from a family member or even a closing cost credit from the seller. Combine a gift for the down payment with a gift or a credit from the seller for the closing costs and a buyer can purchase a home without having to contribute any of their own money!
Advantages of Massachusetts FHA Loans
- Low down payment requirement (3.5%)
- Funds for down payment can come from a gift from a family member
- Closing costs can be paid by a gift from a family member or credit from the seller
- More liberal underwriting guidelines than conventional loans
- Borrowers not penalized with a higher interest rate for a less than perfect credit score
Disadvantages of Massachusetts FHA Loans
- Upfront mortgage insurance is a significant financing cost (1.75% of loan amount)
- Cannot get rid of mortgage insurance for a minimum of 5 years
- Requires more documentation than conventional loans
Borrowers Best Suited for a Massachusetts FHA Loan
- First-time home buyer with limited or no funds for closing costs and down payment
- Borrowers with a less than perfect credit score
Borrowers Least Suited for a Massachusetts FHA Loan
- Home buyers with a significant down payment (10% or more)
- Borrowers with high credit scores
