A Federal Housing Administration loan is originated by an FHA-approved lending institution and is insured by the federal government. Intended for low-to-moderate income households, this particular loan program calls for lower credit score and down payment requirement compared to other conventional-conforming loan programs and types.
As of recently, borrowers can get up to 96.5% of a home’s value given that the borrower can meet FHA loan standards. All this established, FHA loans are not meant for everyone. The primary target is to make purchasing a property easier. While there are considerable tradeoffs, there are also incredible advantages to getting an FHA loan.
Here the loan program’s many benefits that will have you online-searching FHA loan calculator immediately:
Lenient Credit Score Requirement
One of the most sought-after perks of acquiring an FHA loan is being able to purchase a home with a down payment as low as only 3.5%. To qualify for the minimum down payment of 3.5%, the borrower must have a mid-FICO score of at least 580. Experienced borrowers know very well that conventional loan programs demand more significant down payments with credit scores that are equally intimidating or difficult to achieve by many.
Those who can afford to put in a down payment bigger than just 3.5% are in for a treat as better borrowing options may be presented and saving a ton of cash is highly likely.
Gift Funds Allowed
Under an FHA mortgage, you can very much make use of other people’s money for a down payment. As a matter of fact, your whole down payment can be paid through gift funds. Borrowers who have charitable family and friends will be pleased to know that they can pool the resources of their friends and have them cover a huge portion of the loan.
Additionally, home sellers are also allowed to pay a maximum of 6% of the whole loan amount to cover closing fees.
No Pre-payment Penalty
FHA loans do not have a prepayment penalty. Pay it off as agreed or pay it off early, it is completely under your control how and when you want to pay off the entire mortgage. Compared to other loan types where paying off the loan early for your loan in advance calls for a fee, borrowers under the FHA will have none of that.
An FHA Mortgage is Assumable
In a world where free will is imposed, and anyone can just up and leave commitments as long as a decent exit is established, borrowers under an FHA mortgage can have their loan assumed by an equally eligible party should they feel that they’re unable to keep up with their end of the deal. The next borrowers can pick up where the previous FHA borrowers left off, and the new borrowers can take advantage of lower interest fees. Of course, this is depending on whether or not the fees change over time.
FHA Loans Build Equity
When you own a home, you’re able to build equity earlier versus when you rent a place to live in. One keeps paying for a home that will not be theirs. If you’re unsure whether or not an FHA loan is for you, contact us for more information!