FHA loan is a mortgage security that is issued by the FHA (Federal Housing Administration) for new buyers buying a home for the first time. Originating during the Great Depression era, it was a timely effort to make the real estate viable during those turbulent times. FHA loans are easily approved and have many benefits. As long as you don’t have a mortgage with the FHA already and you meet the individual requirements, you can expect a loan approval. FHA is very popular with first time home buyers. Some of the reasons behind this are the following:
- Lower Down Payments: The best advantage an FHA provides over a conventional loan is the small amount of cash needed at closing. A conventional loan has a standard minimum of 5 percent down payment of the purchase price, but an FHA requires you to pay a down payment of 3.5% only. On top of that, the whole of the 3.5% of the down payment can come from an acceptable donor as a gift
- Credit Lenience: Another advantage an FHA provides over a conventional home loan is the amount of credit you require to put a down payment for a loan. While a conventional mortgage needs you to have a credit of at least a 620 middle FICO score, an FHA loan only requires a mid-FICO score of 580 for the minimum down payment of 3.5%. FHA loans are also widely provided to those who have previously filed for bankruptcy or foreclosure.
- Low-Interest Rates: An FHA loan offers a meager interest rate which in turn leads to a lower overall monthly payment. The FHA often provides more moderate interest rates than conventional loans. They are typically about half a percentage point to a full point lower than conventional loans.
- Easier Application Process: A FHA has a straightforward and often a more comfortable application process than a conventional loan as long as you meet the requirements (580 credit score, 3.5% down payment and steady employment)
- Flexible and Accommodating: Another significant advantage of an FHA loan is that it will allow a higher debt to income ratio which is 50% compared to 43% of conventional loans. So even if you have a car loan or a student loan as long as you feel like you can pay off the FHA loan you can apply.
If you consider the above facts, buying a home for the first time won’t be an issue for you. Once you’re ready to apply for your home loan, call an FHA Loan Specialist to get started with a professional.