If you are looking for a home mortgage with a low down payment, an FHA loan is a great option. The FHA has been helping buyers who don’t have the traditional 20% down payment saved, qualify for a mortgage. FHA borrowers pay mortgage insurance premiums until the loan is fully repaid. This is the compromise a borrower makes to get into a home without having to put a lot of money down. The mortgage insurance is the FHA’s premium to finance the home. The FHA mortgage insurance will last for the life of the loan. This is probably the biggest downside of the FHA loan. An FHA home mortgage is a loan insured by the Federal Housing Administration and the premium payments allow the loan to be guaranteed by the FHA-approved lender. This means that if a borrower fails to pay their mortgage and defaults on the home, the St. George mortgage lenders will be compensated by the FHA.
The FHA loan comes with various advantages. In this post, we guide you through the important aspects of this type of home loan before applying for an FHA loan.
1. FHA LOANS ACCEPT LOWER CREDIT SCORES AND A SMALLER DOWN PAYMENT
You can qualify for an FHA loan with a lower credit score compared to the score requirements for a conventional home loan. For borrowers who are still struggling to save for that huge down payment that a conventional loan requires, an FHA loan is a better option. This is considering that the credit score also takes into consideration the saving habits of the individual. Borrowers can qualify for a loan even with a credit score of 580. This is opposed to the conventional loans where the credit score requirement is 620 or higher.
The FHA loan qualification schedule is more forgiving of borrowers with past bankruptcies, foreclosure or short sales. There is a shorter waiting period after these credit delinquencies to qualify for an FHA loan.
Down payment requirements for an FHA loan is lower compared to conventional loans. A borrower can qualify for an FHA mortgage with as little as 3.5% down. In some cases, borrowers with lower credit scores, you may need a larger down payment (typically around 10%) to qualify.
2. FHA MORTGAGE INTEREST RATES ARE LOWER THAN MORTGAGES ON A CONFORMING CONVENTIONAL MORTGAGE
The mortgage interest rates on FHA loans are typically lower as borrowers with a credit score of 660 can qualify for similar interest rates as conventional borrowers with a score of 740. An FHA loan is considered a better option for those borrowers. Another reason why FHA loan rates could is lower is that Fannie Mae and Freddie Mac added loan-level price adjustments and guarantee fees to their loans that are passed onto the borrowers.
3. FHA LOANS COME WITH EASY STREAMLINED REFINANCING
If you are planning move forward with a Utah FHA refinancing option in the future, you will enjoy more benefits. This is because FHA loans provide a streamlined refinancing program, that minimizes the paperwork and the hassle associated with refinancing a conventional loan. St. George mortgage lenders can qualify an FHA refinancing request before ordering a property appraisal. In the end, this saves you money especially if the mortgage rates drop at the time of applying for the Utah FHA refinance. Borrowers under the FHA loan program have experienced an easier refinancing process with less hassle compared to a conventional loan refinance.
4. FHA LOANS ALLOW DOWN PAYMENT GIFTING
Down payment gifting is when your family member or an approved donor gifts you money to help cover part of your down payment. With an FHA home mortgage, you can have your entire down payment gifted to you! With conventional loans, down payment gifting is only acceptable to some of the time. This is a major advantage for borrowers opting for an FHA home loan but don’t have the entire down payment saved away. This option must be declared by obtaining a letter from the donor.
5. FHA LOANS ALLOW THE HOME BUYER TO ASSUME THE REMAINING BALANCE
FHA loans can be assumed by a homebuyer, which means that if you are selling the house down the road, it’s possible that the person who buys it can take over the FHA loan. However, the requirements for the loan have to be met by the person purchasing the property. The benefit and features of the loan are also passed to the next homebuyer because if the seller is enjoying a low interest on the mortgage, the lower interest rate is paid. The buyer will have an advantage when reselling the property. All conventional mortgages are not assumable.
6. THE FHA LOAN IS GENERALLY EASIER TO QUALIFY FOR
FHA loans have fewer requirements compared to a conventional loan. In terms of credit score, debt ratio, and down payments, an FHA is a more flexible option. If you are looking for a simpler route when it comes to financing a loan, you should take a look at an FHA mortgage, which has easier qualification requirements.
In closing, many finance sector experts expect that the future of the FHA mortgage loans is bright. You can expect that FHA loans will become more affordable over time.