If you are currently researching mortgage options, you have likely come across FHA loans. An FHA loan, often known as a first-time home buyer’s loan, is a popular option for those looking to get into a home more quickly, since the down payment requirement is much lower than is traditionally associated with a conventional loan. This, however, is far from the only reason to choose an FHA loan. If you are interested in learning more about this type of loan, read on to learn some of the most powerful reasons to select an FHA loan for your next mortgage!
1.) Lower Credit Requirements-
While FHA loans aren’t just for first time home buyers, they remain one of the best options for first time home buyers who may not be able to afford a home any other way. One way that FHA loans help those trying to get on their feet is by offering home mortgage loans to those with credit scores of at least 580. Thus, even if your credit has been less than stellar in the past, you can begin to build equity in a home, instead of throwing away money in rent month after month.
2.) Lower Down Payment Requirements-
FHA loans require as little as a 3.5% down payment, which is much lower than the 20% required by most conventional lenders. Henceforth, making home ownership much more accessible to those with limited funds or those trying to purchase their first home without equity from the sale of a prior home.
3.) Flexible Debt Ratio Requirement-
FHA loans are more lenient when it comes to debt-to-income ratio requirements. While conventional loans typically need a higher ratio for approval, FHA loans will often accept ratios up to 43/50. This makes them a great option for those with higher debts who may not be accepted by other lenders.
4.) Lower Interest Rates-
FHA loans often come with much lower interest rates than conventional loans, making them an attractive choice for those who are trying to keep their monthly payments as low as possible. This is because the lender assumes less risk since FHA loans are backed by the Federal Housing Administration (FHA) allowing the mortgage holder to enjoy the benefit of a lower interest rate.
5.) No Prepayment Penalty-
Unlike many other loan options, you won’t have to worry about a prepayment penalty should you wish to pay your FHA mortgage loan off prior to the end of your contract. Thus, you can enjoy putting down extra income to pay off your home more quickly, without fear of being charged a fee.
6.) Acceptable Loan Terms-
FHA loans are also more flexible when it comes to loan terms. Whereas traditionally conventional loans require a 15 or 30-year term, these types of loans can be secured with a number of different repayment options. This makes them ideal for those who may not be able to commit to a lengthy loan period.
7.) Lower Closing Costs-
Not only will an FHA loan require a lower down payment, but closing costs on these loans are also much lower than conventional loans. This means more money in your pocket at the end of the process, which can go towards repairs or improvements, or just provide you with extra breathing room in your budget. Additionally, unlike conventional loans that allow sellers to pay a maximum of 3 percent of the buyer’s closing costs, sellers may pay up to 6 percent of the buyer’s closing costs if they are utilizing an FHA loan. For those fortunate enough to find a seller willing to work with them, this can be a huge relief, particularly if the person is a first-time home buyer, who may not have enough savings to cover a down payment in addition to closing costs.
8.) Reduced Private Mortgage Insurance (PMI)-
PMI is an added cost that is required by most lenders when the borrower’s down payment is less than 20% of the purchase price regardless of whether it is a conventional loan or an FHA loan. However, with FHA loans, you can enjoy reduced PMI premiums, which makes it easier to keep up with your mortgage payments and build equity in your home more quickly.
9.) No Income Ceiling-
Arguably, one of the best reasons to consider an FHA loan is because absolutely anyone who meets the requirements is able to qualify for this type of loan. While FHA loans cater to those with lower credit scores and down payments, there is no income cut off to qualify. Thus, regardless of which tax bracket you fall into, you can obtain an FHA loan, so long as you meet the minimum standards for approval.
10.) Easier Refinancing Options-
If you find yourself in a place of financial hardship with your conventional loan and wish to refinance, FHA loans offer easier refinancing options. These options include streamlined refinances, which require no income verification and no appraisal. This makes it a much simpler process for those who need to free up cash flow or lower their monthly payments quickly. Whether you are in need of refinancing to make home improvements or to lower payments, you can’t go wrong with an FHA refinance loan.
11.) Covers A Wide Range of Property Types-
FHA loans are not limited to just single-family homes; they can also be used for a variety of different property types. This includes condominiums and even new constructions! Thus, no matter what type of place you would like to call home, FHA loans could be a great option for you. Furthermore, it’s important to keep in mind that FHA loans are also available for those looking to buy a multi-unit property as their primary residence offering buyers even more options!
12.) Makes Home Ownership a More Even Playing Field-
Many people think that home ownership is only for the wealthy. With the addition of FHA loans, home ownership is now more attainable than ever for the average American. With reasonable down payments, lower credit score requirements, and lower interest rates, you may be surprised at how easily you could be approved for your next FHA mortgage.
FHA loans offer a wide range of benefits and advantages that make them the loan of choice for many home buyers. From lower down payments and closing costs to easier refinancing options, FHA loans have made the process of buying a home much more accessible to those who are existing on smaller incomes. Thus, if you’re tired of throwing away money to rent an apartment and are dreaming of taking out a mortgage on your very own home, be sure to consider the many benefits an FHA loan has to offer!