FHA loan is a house loan from the lenders that the US federal housing administration insures. This loan is convenient for low to moderate-income homebuyers since it has very lenient credit score requirements and its minimum down payment is also low. So, if your dream is to buy your first house and don’t qualify for other conventional loans, you can consider applying for the FHA loan.
Anyone can apply for the FHA loan now to buy a house as long as they live there. This is different because, in the beginning, the FHA loan served only low to moderate-income buyers. This means that more people are turning to this mortgage due to its lenient requirements, which is affecting the US housing market because the defaulting rate is rising by the day.
As a first-time homebuyer, FHA is the best loan you can ever come across in the US because of its many benefits. See the benefits below;
The rates are lower compared to traditional mortgages
The FHA rates range at 0.125% or even more below conventional loans. If you’re borrowing from FHA and have a credit score of, say, 660, you will still get the same interest rate as someone with a good credit score like 750 borrowing a conventional loan. As you might already know, loan borrowers always pay penalty rates depending on their credit scores; you pay a high interest rate if your credit score isn’t good enough. This is not the case with FHA loans, as they don’t use this risk-based arrangement.
The minimum down payment is 3.5%
This is the lowest down payment you can ever find with mortgage loans, which is only possible with to qualify for these loans, your credit score must be average and above. You’ll never see or hear of such restrictions when applying for the FHA loan.
Even those with below-average credit scores can apply
For other lenders, you must have a minimum 620 credit score to qualify for a housing loan. This is not the case with FHA loans because even those with below-average credit scores can still apply and qualify. Don’t worry if you have a credit score that is below average, 500-579, because if you’re able to pay a 10% down payment, then you qualify for an FHA loan. But, for a lower down payment, 3.5% to 9.9%, you must have a minimum credit score of 580 and above. This, therefore, is the best and cleanest path to take if you want to own a home for the first time, especially with a not-so-good enough credit score.
From the benefits above, you can see why it’s convenient for first-time homebuyers to go for FHA loans. But, you must know that not all mortgages offer FHA loans, so do your research well to find lenders that provide them in your area. Also, don’t succumb to pressure if you’re not ready. But, if you feel you are, make FHA loan the ticket to your dream house
by: Alex Capozzolo
Alex Capozzolo is a partner of Henry Buys Homes, a real estate company in Jacksonville, FL. He has been writing for the real estate industry for several years. Henry is a licensed agent that operates in the Florida market.