FHA loans are popular among first-time homebuyers. However, almost everyone could qualify for this type of financing. But is it a good idea?
Remember that FHA insures your loan. The agency doesn’t lend the actual mortgages. But this assures borrowers to score better mortgage deals from its approved lenders. It’s also important to know since the FHA only backs a mortgage; rates and other specific requirements could vary by lender.
A lot have considered getting FHA loans since it opens a door to a mortgage with not-so-strict guidelines. Whether first-time or repeat home buyers, there are a few good reasons why FHA is a good choice.
1. Flexible Debt-to-Income ratio
Debt-to-income ratios or DTIs are a crucial element in every loan application. As a borrower, you would want your lender to see a satisfactory DTI. Conventional loan lenders would like a low DTI since it indicates that you can manage your monthly debts.
With FHA loans, the qualifications are a little forgiving. If your DTI is quite higher than the general standard, the FHA can still allow borrowers to apply for a loan.
2. Allows borrowers with low credit scores
Your credit score is also a crucial factor when you try to qualify for a home loan. In fact, different loan types have their minimum credit score requirements. FHA loans make room for applicants with credit issues. They are known to be quite lenient with this.
The typical minimum credit score requirement by lenders under the FHA is at 580. If you have a lower score, you can still qualify. The difference would now lie on the amount you would put down as down payment.
3. Low down payments
FHA loans are known for their low down payment requirement. This is very beneficial for borrowers who don’t have enough money saved for the standard 20% down payment for most conventional loans.
If your credit score is at the minimum 580 or higher, you can score the lowest possible down payment for FHA loans which is 3.5%. If your credit score is lower than 580, a 10% down payment is required.
4. Possible lower closing costs
Like any other home loan, there are closing costs that are needed to be paid out of pocket. But with the FHA, closing costs may be quite lower. Sellers are allowed to contribute up to 6% of the purchase price toward your closing costs. It’s possible to work this into your contract.
Gift funds from friends and family may also be used to cover some of your closing costs, fees, and down payment.
And since there are more to FHA loans that could make you want to apply for one, these are the most common reasons why it’s good for you. There’s no need to worry because FHA-approved lenders are more than willing to help you through the process.Click to See the Latest Mortgage Rates»