FHA home loans are the most popular mortgage loan option in the mortgage market because of the many benefits offered by the FHA also known as the Federal Housing Administration. Many borrowers are choosing the FHA home loan programs over other conventional loans because the FHA offers lower down payments, more lenient lending requirements and even offer assistance programs for qualified borrowers. The FHA does not directly fund loans, but rather act as an insurer to the lender, meaning lenders can offer these loans without taking on a big risk if potential borrowers were to default on their mortgage loan.
Why FHA Home Loans?
Basically, borrowers who choose to utilize the FHA home loan programs are required to pay a mortgage insurance which in turn allows lenders to lower their interest rates significantly for these loans. The more lenient and flexible qualification requirements is also another reason why the FHA is such a favorable option to not only first time homebuyers, but repeat buyers as well.
Benefits borrowers can take advantage of:
- Low Down Payments
- Lenient Credit Score and History Qualifications
- Closing Cost Assistance
- Qualified Lending Specialists
- 203(K) Loan Program
Low Down Payments
Majority of mortgage loans will require the borrow to put down money as their “down payment” and one of the reasons borrowers are favorable to the FHA home loan program is because the FHA only requires borrowers to put 3% of the purchase price down. However, that is if the borrower is able to meet certain qualifying credit score criteria.
Credit Score and History Qualifications
Every lender is going to require a minimum credit score regardless if the loan specifics request a minimum score or not. Borrowers are required to either meet or exceed these minimums in order to be qualified for a FHA home loan. The down payment amount will also depend on the borrower’s credit score. For example, if a borrower with a credit score of 580 wants to utilize the FHA home loan program they may be qualified for the low down payment option, however, a borrower with a credit rating lower than a 580 may be required to put down at least 10%. It’s important to know where your credit rating stands before applying to any home loan program. A credit score lower than 500 is most likely ineligible for the FHA loan, but ask your lender for specific details pertaining to your situation. You may need to take steps to raise your credit score before applying for a home loan.
Closing Cost Assistance
Closing cost assistance is another amazing benefit to the FHA home loan program. Borrowers have a few options when utilizing the FHA home loan closing cost assistance. Closing costs can either be covered by the seller of the home, the builder of the home, or even your lender. When lenders pay the closing costs they will usually charge the borrower a higher interest rate. It’s important to compare interest rate quotes from multiple lenders before deciding which lender to use.
203(K) Loan Program
The FHA or Federal Housing Administration offers a very special loan program specifically for borrowers who are looking for funds to upgrade or improve their homes. This loan program is known as the 203(K), and by using this program borrowers are able to finance an amount no more than $35,000.00 for non-structural repairs, such as, replacing lights and fixtures, remodeling cabinets, or painting. The 203(K) amount is based on the project value of the house after repairs rather than the originally appraised value. This basically means, the loan is based off how much the house will be worth after all the repairs and upgrades are finished. This is an amazing program for homes that are considered out of date and need a few touch-ups and upgrades.
Qualified FHA Lending Specialists
As stated above, the FHA is a home loan program which insures lenders from a borrower defaulting on the home loan, which in turn allows the lenders to offer the FHA home loan to borrowers at a lower rate. However, in order to utilize the FHA home loan program, borrowers will need to find a qualified FHA approved lender. Make sure to do a lot of research before choosing a lender. IT’s a good idea to shop around to different lenders as well in order to find a lender that most closely matches your needs. Compare lenders rates, guidelines, and loan programs, because not every lender will offer the same thing and most lenders rates will vary depending on where you live as well as where the property of interest is located.
Ready to start your lender search? Click the link below and within minutes you’ll be matched with an approved FHA lending specialist eager to help you with your FHA home loan and answer any questions you may have regarding the FHA home loan process.
Justin McHood is America's Mortgage Commentator and has been providing expert mortgage analysis for over 10 years.