4 Advantages of an FHA Loan

An FHA loan presents many opportunities to those looking to purchase a home. Buying a home is a big financial step and you need to fully consider all of your options before you commit to one. FHA loans are insured by the Federal Housing Department and have a few important advantages.

1. Low Down Payment

With an FHA loan, you will be able to make a much smaller down payment than you would with most loans. FHA loans require as little as 3.5% down. This down payment option opens the door for many more people to get involved in home ownership. One of the biggest problems with homeownership is overcoming the large down payment and costs required. In this way, FHA helps promote home ownership.

2. Low Interest Rates

With an FHA loan, you will typically get a very good interest rate. FHA loans are competitive with what you can get in the open market. When you secure a low interest rate, this can save you thousands of dollars over the life of the mortgage.

Also, FHA offers good adjustable rate terms, or ARM loans. For example, most conventional loans offer ARM products that adjust every 6 months. FHA offers a competitive product that adjusts once a year instead so that borrowers feel more secure with their payments.

3. Flexible Terms

FHA loans offer flexible credit qualification standards. The FHA is a government-backed agency and the government is essentially backing your loan. This makes lenders much more likely to give you the money you need when you have less-than-perfect credit.

Also, debt to income ratios is higher than traditional market ratios. Conventional ratios are typically 28/36 and FHA ratios are typically 29/41. The higher debt ratios mean that most people have a little more room to qualify for higher payments. As a whole, FHA guidelines have more flexible standards than Conventional standards. For example, with a good reason, such as death or divorce, you can qualify for a home even with low credit scores.

4. First Time Home Buyer Program

The FHA also has a great first time home buyer program for you to use. If you have never purchased a home before, you might find that it is difficult to get approved. Many lenders do not like to offer a mortgage to someone for the first time.

When you are a first time home buyer, you do not have an established credit history. Therefore, it may be hard to get approved with traditional methods. With the FHA program, not only can you get approved, but you will get a good rate with good loan terms. If you do not have a credit history profile, FHA will accept 12 months of cancelled checks to show you have paid rent, utility statements or insurance receipts. They will use the non-traditional credit history, in lieu of traditional credit.