An FHA loan is a powerful lending tool that can work for all homebuyers, not just first-timers.
Although the FHA loan is designed with newcomers in mind, a diverse pool of applicants can take advantage of the program’s lenient borrowing terms and features that bring homeownership within reach.
What it is
An FHA loan is backed by the Federal Housing Administration, which is the world’s largest insurer. Nearly 50 million mortgages have been processed through this program since its creation in the 1930s.
As an insurer, FHA does not fund the loans, however. Instead, FHA works with approved lenders that do business directly with consumers.
Importance of being federally backed
The most crucial component of FHA loans is that they’re backed and insured by the federal government. As a result, lenders have more leeway to work with applicants despite their credit standing or financial history.
Since FHA loans pose a lower risk to lenders, FHA loans will require a modest down payment and moderate credit.
This makes it easier for all income levels to participate. At the same, FHA loans do not have an income limit. So, anyone who meets the minimum requirements can move forward and purchase a home with the assistance of an FHA loan.
Whose an FHA loan suited for?
In many cases, first-time homebuyers benefit the most from an FHA loan.
With a minimum down payment requirement of 3.5%, the FHA loan offers tremendous flexibility in a market that’s defined by rising home prices. As a new homebuyer, you might not have the assets of home equity to commit to a larger, 20% down payment.
While the FHA loan is geared toward newcomers, its benefits extend to a broad range of homebuyers. Homebuyers need not be first-timers to qualify for the program.
Investors, however, cannot access an FHA loan because the program is designed for primary residences.
How to qualify for FHA loan
An FHA loan comes with lenient borrowing requirements. For instance, applicants should have a minimum credit score of about 580 and have about 3.5% for a down payment. If the credit score is lower than 580, then borrowers will have to come up with a bigger down payment to offset the substandard credit score.
In addition, applicants should possess a 43% debt-to-income ratio. If the applicants carry too much debt, they’ll have to make some adjustments, such as paying down debt, before advancing in the process.
The home must also be the borrower’s primary residence and the price cannot exceed federal loan limits, which will vary depending on the home’s location.
Closing costs for FHA loans
In addition to a down payment, homebuyers will also be on the hook for closing costs. Home appraisal, homeowners’ insurance, title fees and other closing activities are included in closing costs.
Closing costs for an FHA and conventional loan are nearly identical. The home appraisal might cost a little more with an FHA loan and borrowers will have to pay mortgage insurance premiums upfront.
Aspiring homeowners can work with us as their trusted FHA loan provider. Our team of loan experts will work hard on your behalf so you and your family can take advantage of a low down payment option and other beneficial FHA program features.
Applicants will also be pleased to know that the application process is straight-forward and is like applying for a conventional loan.
So if you have less-than-perfect credit and can benefit from additional homebuying resources, please contact us today to learn more about the FHA program and its pathway toward homeownership.
Premier Mortgage Resources, LLC is not affiliated with or an agency of the federal government. All information contained herein is for informational purposes only and, while every effort has been made to ensure accuracy, no guarantee is expressed or implied. Any programs shown do not demonstrate all options or pricing structures. Rates, terms, programs, and underwriting policies are subject to change without notice. The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax-deductible for federal income tax purposes and the consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.