So you’ve spent years saving the down payment for your dream home. Now it’s show time and, you’re in the process of getting financing.
Maybe you’re a first time home buyer or this isn’t your first rodeo, you want to cover all your bases. So you’re doing your research or your loan officer told you about FHA loans, but you aren’t sure if it’s the right call for you.
Don’t worry! We have you covered. We’re going to tell you all about the benefits of FHA loan, and you can decide if they’re the right call for you.
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FHA Loans: The Basics
Before we go into the FHA loan benefits, we’ll go over the basics of this type of loans. What are FHA loans? Are they for everyone?
An FHA loan is a mortgage loan that was developed for low to moderate income borrowers who can’t make a large down payment on their loan. These loans are issued by qualified lenders and, insured by the Federal Housing Administration (FHA).
There are different types of FHA loans. Some of them are FHA Adjusted Rate Mortgage, Secure Refinance Loan, Reverse Mortgage Loan, Energy Efficient Mortgage Loan, and Loans for Condominiums, among others. The most popular and known type is the Fixed Rate FHA Loan.
So if you aren’t a first-time borrower or are looking make improvements, you may apply for an FHA loan after all. But, remember before you apply you should do your research, and make sure that loan is your best option.
How to Qualify for FHA Loan?
Like with any type of financing, your credit score will be crucial to borrowing the money you need. Yet, when it comes to FHA loans it doesn’t tell the whole story.
Your lender will ask you to meet other requirements. To qualify for an FHA loan, you must have a valid Social Security Number and must provide proof of U.S. citizenship, legal permanent residency, or work eligibility in the U.S.
Also, you must be buying a 1 to 4 unit property and, must meet your state’s borrowing laws when it comes to your age. For example, you’re 18 years old, your state requires borrowers to be 21 years or older, and you’re applying for an FHA loan.
You won’t be able to qualify for this type of loan. So even if you have an excellent credit score, you might not be able to apply for FHA financing if you don’t meet these additional requirements.
Top 6 Absolute Best Benefits of FHA Loans
FHA loans make home buying possible for many people who may be denied financing through the traditional route. Yet, this is just part of the story.
Even if you may be able to obtain financing the ordinary way, FHA can be the best option for you. Here are the top 6 absolute best benefits of FHA loans:
1. Flexible Credit Score Requirement
FHA offers flexibility when it comes to the credit score requirement. When you apply for this type of loan, credit score is very important but not as strict as expected.
In a conventional mortgage, the average credit score required from an applicant is 620. While FHA loans average credit score requirement is 500.
This makes it easier for the average Joe to get financing when they apply through one of the FHA borrowing programs. This makes FHA a great option when you haven’t been able to build credit, had problems in the past with your payments, or even bankruptcy.
2. Low Down Payment
Usually, the biggest headache when buying a home is saving up the down payment on the property. When you apply for a conventional mortgage, they require from 5% to 20% down payment. For example, if you were buying a property valued at $500,000, you would’ve to put down from $25,000 to $100,000 as a down payment.
This amount of money isn’t the usual pocket change we keep in hand. Many people say this is one of the main reason why they haven’t bought their own home. It’s crazy that even when you might’ve what’s known as a perfect credit score, you’ll still have to put down so much money to buy your house.
FHA loans down payment requirements are very different. If you have a 580+ credit score, you’ll only have to put down a 3.5% down payment. While if your credit score is from 500 to 579, you’ll be putting down only a 5% down payment.
If you were buying a $500,000 property, you would only have to put down $17,500 and $25,000 respectively. This isn’t too bad when you consider the deal you would get through a conventional mortgage.
3. Attractive Mortgage Rates
Conventional mortgages rates can be fixed and variable. While FHA loan rates are fixed. This makes it a great option for people who want a set payment.
If your mortgage rate is variable, it means that your mortgage payment will change from time to time. And you will be paying more interest on your payment.
4. Assumable Loan
You might not be thinking or heard about assumable loans, but this is a great benefit. An assumable loan refers to loans that can be transferred to someone else.
If you decide to sell your property and have an FHA loan on your property, you may transfer it to the buyer. This is a great benefit because it will make it easier to sell your home.
5. Closing Costs
You may have heard builders say they’ll pay your closing costs if you buy their property. Unlike other types of financing, FHA allows builders, lenders, and home sellers pay for the closing costs. Some of these costs are credit reports, appraisals, or title expenses, among others.
6. Financial Hardship Safety Net
You might not have heard about this but, FHA loans may make you eligible for financial hardship relief. Loan services are able to offer relief to borrowers of FHA loans when they’re struggling to make payments or have suffered severe financial hardship.
Some of the options your loan lender may offer you are temporary forbearance, deferral of part of the loan balance without interest, among others.
Wrapping It Up
Now that you know the top benefits of FHA loan, buying your dream home shouldn’t be difficult. It’s recommended that you do your research and, ask your loan officer any questions you may have before applying. You want to make sure this loan is the right one for you.
You’ve decided you’re going to get a mortgage to buy your dream house. Do you know if your credit is in shape for the loan financing process?
Check our post to learn more.