FHA Mortgage: Is It The Best Home Loan?

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mortgage loans

With so many lending companies around and plenty of mortgage loans to choose from, some people still find it hard to own a home because of their credit and financial situation. While there are those that coast through conventional mortgage standards like it’s no big deal, others struggle to reach the required credit score, let alone afford the 20% down payment. It is for these reasons that FHA loans exist.

The FHA loan program of the Federal Housing Administration gives the majority of working-class Americans a better shot at homeownership. The program offers home buyers two primary benefits. First, a relatively low down payment. And second, less stringent guidelines.

Benefits of Buying A House With an FHA Loan

If your less-than-desirable credit history or questionable financial situation is killing your chance of affording a home through traditional loans, the FHA loan might open doors for you.

Should you choose to go for an FHA-insured mortgage, here are the potential benefits it can offer:

Lower down payment

What made FHA loans more appealing than other mortgage options out there, is it’s more affordable down payment. According to many homebuyers, this factor is their primary motivator for choosing an FHA-backed mortgage over conventional ones.

Down payments for FHA loans range from 3.5% to 10% depending on your credit score. The higher your credit score is, the lesser the upfront payment will be.

Even if a borrower has a low credit rating and has to put up 10% to avail of an FHA loan, 10% is still a far cry from the 15% –  20% required by traditional loan lenders. This makes the FHA program a hit among those who don’t have a lot of money saved up for a down.

Lower credit score 

If you’re unable to qualify for a regular mortgage loan because of your credit score, you just might with the FHA program. In fact, the 3.5% down payment option is available to those with a credit score of at least 580. Applicants with credit scores anywhere between 500 – 579 may have to put up a larger upfront payment.

Flexible qualification standards

Generally speaking, the standards in qualifying for FHA loans are more relaxed than those for regular home loans. This has a lot to do with the insurance that FHA-approved lenders receive from the government.

Borrowers who got rejected for conventional financing often find themselves getting granted an FHA home loan.

Allows down payment gifts

While many home loan options allow down payment gifts, most of them put a limit on the amount that can be covered by a relative or donor.  With the FHA loan, however, you can have the entire amount of your deposit gifted to you. This key benefit of this government-insured mortgage makes it one of the best choices for first time home buyers who are lacking in initial funds.

Assumable home loans

FHA loans being assumable means that you can transfer your mortgage loan to the person who buys your house, should you decide to sell it in the future. This is especially beneficial nowadays, as interest rates are rising.

It would be easier for you to market your house as the person to purchase it from you can just assume the original, lower rates and save money.

Is FHA loan the best option?

Despite its many benefits, the FHA loan is not perfect. Borrowers who go for an FHA-backed mortgage find themselves paying for  insurance that lasts for the life of the loan.

It’s worth mentioning, however, that a lot of people whose credit histories and financial situations prevented them from qualifying for other loan options are now proud homeowners — thanks to FHA loans.

by Kyle