FHA loans are one of the more popular options for mortgage borrowers, some of the benefits of using an FHA loan is it offers lower down payments and they have more lenient lending standards. The Federal Housing Administration, also known as FHA, insures mortgage loans so borrowers who utilize this program are required to pay for mortgage insurance which protects the lender if the loan were to default.
Why Choose an FHA Loan
It’s quite simple, the insurance. Borrowers are only required to pay mortgage insurance making an FHA loan a preferable choice when choosing a loan program. Lenders can offer these loans at a significantly lower interest rate as well. The lenient and flexible qualification requirements is another reason that makes this home loan program a favored option for borrowers.
Here are five benefits to choosing an FHA Loan over other loan programs,
1. Down Payments
While majority of mortgage loans require a down payment, one of the favored reasons borrowers do choose this loan option over other loan options is the lower down payment, at only 3.5% of the purchase price. That is if you meet the minimum qualifying credit score.
2. Credit Score
All lenders have a minimum credit score requirement which a borrower must meet or exceed before they are qualified to utilize the FHA loan. The down payment also depends on the borrower’s credit score. A borrower with a credit score of 580 or higher may be qualified for a down payment as low as 3.5%, but a borrower with a lower credit score than 580 may have to put down at least 10% of the purchase price. It’s good to know and understand your credit score and credit history beforehand, but your lender can always help you obtain your score. A score lower than 500 usually is ineligible for an FHA loan, however there are always steps you can take to increase your credit score.
3. Closing Costs
Another of the many benefits of the FHA loan is, borrowers can have their closing costs covered by the seller, the builder or even the lender. However, when the lender pays the closing costs they will usually charge a higher interest rate. It’s a good idea for borrowers to compare loan estimates from competing lenders to find the lender and options that work best for them.
4. Approved Lenders
The FHA is a home loan program that insures the lender and mortgage, which means to utilize it your lender must be an FHA approved lender. Make sure to do plenty of research and always compare lenders because not every FHA lender will offer the same interests rates or options.
The FHA also offers a special loan program, this program is specifically for borrowers who may need a little extra money for repairs to their home. This loan program is called a 203(k), by utilizing this program it allows borrowers to finance up to $35 thousand dollars for nonstructural repairs, such as replacing fixtures, remodeling cabinets or painting. The 203(k) loan amount is based on the projected value rather than the appraised value of the house. This means the loan is based off how much the house will be worth after repairs and renovations are completed. This is a great program for a home that may seem a little out of date, but just needs a few upgrades.