Most people think of FHA loans strictly as loans for first-time homebuyers. While they are a perfect loan for those that have never owned a home, they also offer many benefits for those that own a home now or wish to purchase another home. Understanding the benefits of these loans can help you reach your financial goals when it comes to home ownership.
You can Reduce your MI with a Larger Down Payment
Mortgage insurance is the negative aspect of FHA loans. No one wants to pay it, yet they cannot get away from it unless they put 20 percent down on a conventional loan. What many people do not realize is that with just 10 percent down on a home, they can reduce the amount of time necessary to pay MI on an FHA loan. With a 90 percent loan-to-value ratio, you only pay MI for 11 years rather than the life of the loan. That is a significant savings and gives you the opportunity to get a loan when you might not qualify for a conventional loan. FHA guidelines are much less stringent than standard loan guidelines, allowing you to be a homeowner without paying hefty prices.
You can Fix up your Home with One Loan
Getting a home equity loan today is not as easy as it used to be. This means that people that want to fix up their homes must come up with more creative ways to finance the costs. If you have an FHA loan or want to apply for an FHA loan, however, it is not as hard as you think. The FHA 203K loan allows you to include money necessary to fix up your home in the first loan, meaning the loan used to fund the purchase or refinance of the home. There are two types of 203K loans – streamline and standard. The streamline loan allows you to include costs up to $35,000 as long as none of the changes you make are considered structural. If you need to make structural changes, you will need a full 203K, which is more work but does give you the opportunity to completely rehab a home with one mortgage.
You can Have Fair Credit and Still get a Loan
FHA loans are among the most lenient when it comes to loan standards. If you have explanations for your poor credit history and the incidences are isolated in one time period, you can typically work your way around those issues and get a mortgage much sooner than you could with any other type of loan. The good news is that with FHA loans, you get favorable terms despite your credit blemishes. This is in stark contrast to other types of loans, such as non-qualified mortgages which will charge you higher rates and costs just to make up for the risk you pose as a result of your credit history. Because the FHA guarantees the loan, lenders are more willing to provide an FHA loan with better terms knowing that they will be covered should you default on the loan in the future.
You can Get an MI Refund
If you plan on refinancing your FHA loan shortly after the purchase of your home in order to lower the rate or for any other reason, you can get an upfront MI refund. This helps to fund your new upfront MI on the refinance, making it less expensive to refinance your loan so soon. The amount of the refund you get depends on the length of time that has passed since the origination of your loan. As a standard rule, 210 days or 6 months must pass before you are eligible to refinance in the first place, but after that, you will receive a refund. After six months, you are eligible to receive 70 percent of the MI back as a refund; the amount goes down from there, decreasing 2 percent each month. You will receive the refund as a credit towards your new MI, though, so don’t expect to get a check made it out to you at the closing.
You can Have a High Debt Ratio
Debt ratios often make it hard to get a conventional loan. With the new guidelines regarding qualified loans, lenders are extra careful about whom they lend to and anyone with a slightly higher debt ratio is considered unfit for a mortgage. The FHA looks at it a bit differently, though. They are a bit more lenient with this rule as long as you have other compensating factors that make up for the high debt ratio. These compensating factors can be anything from an exceptional credit score to a large amount of assets/reserves in the bank.
FHA loans offer a large number of benefits that many people overlook, assuming it is a loan only for first-time homebuyers. If you are in the market for a mortgage, take a close look at the benefits of an FHA loan. If you decide to pursue this type of loan, you will have to find a lender that is FHA authorized, which many banks today are, giving you the opportunity to shop around. Remember, that every lender has their own ability to add more requirements into the FHA requirements, so if one lender turns you down, go ahead and shop around with others until you find the terms and type of loan you are looking to get.