An FHA loan refers to a mortgage loan backed by US Federal Housing Administration mortgage insurance and provided by a lender who is FHA-approved. If you’re thinking about getting a FHA loan, read this article to learn more about the advantages of FHA mortgages in 2019.
Lower Down Payment and Credit Score Requirements
One of the benefits of an FHA loan is that the requirements for down payments and credit score are much lower than for conventional loans. According to the Department of Housing (HUD), borrowers only need a down payment of 3.5 percent and a credit score of 580 or higher to qualify for an FHA loan. On the other hand, borrowers need to have a minimum credit score of 620 or 640 to meet the requirements for most traditional loans.
Helps Cover Closing Costs
Another major benefit of FHA loans is that they allow sellers to pay a maximum of six percent of the loan amount for the closing costs of the buyer. In comparison, sellers are only able to pay a maximum of three percent for conventional loans. This is particularly beneficial for homeowners who have only saved up enough for the down payment.
Another benefit that FHA borrowers enjoy over conventional borrowers are the fact that FHA loans are assumable. What this means is that buyers don’t have to take out a new mortgage. Instead, buyers can assume the FHA loan of the seller at the same mortgage rate.
This is very beneficial for buyers and sellers in an area with rapidly rising interest rates. Assumable loans give FHA borrowers an advantage over conventional borrowers when it comes to selling their home.
However, it is important to keep in mind that it is not always easy to assume an FHA loan. The buyers need to fulfill all the mortgage requirements. Also, the buyers may need to pay a larger down payment depending on the equity of the seller.
If you are a borrower who foresees refinancing in the future, you should definitely consider getting an FHA loan. The DUD offers a streamline refinance program.
This program is intended to limit the paperwork and inconvenience that is typically involved when it comes to the home refinancing process.
No property appraisal is required for an FHA streamline refinance. In contrast, a property appraisal is required for the majority of borrowers who want to refinance.
Larger Down Payment Gifts
If your mortgage loan is FHA-insured, it is possible for a family member or a friend to cover the entirety of your down payment. While down payment gifts are permitted for conventional loans as well, there is typically a cap.
This is a significant advantage of FHA loans in comparison to conventional loans. This is particularly true for first-time homebuyers who haven’t saved up much money for their down payment.
Unfortunately, many first-time homebuyers are unfamiliar with the many advantages of FHA-insured loans in comparison to conventional loans. As you can see, there are many reasons you should consider getting an FHA loan. For more information about the benefits of an FHA loan, don’t hesitate to contact us.