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FHA loans are one of the best options for young, first-time home buyers who have not had as much time to save for a large down payment or establish a high credit score.

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FHA Mortgage Insurance Issues For First-Time Home Buyers


FHA Mortgage Insurance Issues For First-Time Home Buyers

Buying your first home is a major milestone. If you use an FHA mortgage to buy your home, you’ll have two different types of insurance to consider. 

One type is the FHA-required mortgage insurance premium, which is paid for 11 years or the loan's lifetime, depending on your down payment, loan term, and other variables.

That insurance policy protects the lender in case you default on the mortgage; it does not protect the homeowner.

The other type of insurance is homeowner’s insurance, sometimes called hazard insurance. This policy protects the borrower’s investment, covering the house and any contents specified in your legally binding loan agreement.

Some consider this type of insurance a safety net for the home, protecting the insured from the financial burden of a fire, theft, or natural disaster.

FHA Loan Requirements and Adequate Protection

The FHA doesn't dictate specific types of hazard insurance, but borrowers should maintain enough coverage to protect their investments. 

Setting deductibles too high or failing to get coverage for certain contingencies such as flooding (as opposed to the water damage from a broken pipe or related issues.) Your insurer may value the home based on the lesser amount between the appraised value and the replacement cost of the property. 

Deductibles, the out-of-pocket amount before your insurance pays, may be set at your discretion. However, carrying deductibles you can’t realistically pay today in cash is a risk.

Homeowners Insurance vs. Mortgage Insurance

It's easy to confuse homeowners and mortgage insurance, but they serve distinct purposes. Homeowners insurance protects your property and belongings, as mentioned above.

Mortgage insurance protects the lender in case the borrower defaults on the loan. This type of insurance does not pay out to the borrower.

This insurance minimizes the lender's risk and makes it easier to approve your FHA loan.

Choosing the right hazard insurance policy for your FHA loan requires careful consideration of several factors:

Coverage Needs: Evaluate your specific needs based on the value of your property, its location, and everything you own.

Policy Options: Compare different policy options and coverage levels to find the best fit for your needs and budget. Pay close attention to deductibles, premiums, and any exclusions listed.

Discounts: Ask about discounts, such as those for security systems, smoke detectors, and carrying several policies with the same insurer.

See Your Credit Scores From All 3 Bureaus
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FHA Loan Articles

Ready To Apply for an FHA Loan?

Before you get ready to commit to a home loan application, it’s good to review your circumstances and ask a few basic questions about your loan, your plans, and the home itself. Believe it or not, knowing what type of home loan you need is an important step.

Fixing Your Credit Score

When getting ready to shop for a home loan, it's worth taking a look at your credit report. Your credit score is a big factor when lenders take a look at your loan application, and it plays a huge role in the interest rate you get. 

What to Know About Down Payments

When it comes to buying a house, saving up for a down payment can be one of the most overwhelming aspects. While down payments are one of the biggest obstacles for many in the mortgage process, it helps to understand the ins and outs of why they play such a big role.

Let's Compare FHA Loans to VA, USDA, and Conventional Mortgages

Buying and financing a home is complicated and can become overwhelming. It's important for you to stay informed, and know what your options are. So, start with the basics and read about the four different mortgage types available before approaching a lender.

FHA Programs for Fixer-Upper Homes

The fact is that repairs and renovations to your home cost a lot of money. Luckily, the FHA has an option for those with fixer-uppers on their hands. The FHA 203(k) Rehabilitation Mortgages allows borrowers to finance the funds for renovations to a home.

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