The Federal Housing Administration created the FHA loans to provide low to moderate-income families a means to afford their own homes. Though the loans are still handled and offered by banks and private lending companies, the government insures the mortgage against future default, making it possible for lenders to be more lenient with their terms and requirements.
The low-cost and affordable nature of FHA loans, coupled with its more relaxed terms, makes FHA and first-time buyers a good match. People who are denied traditional mortgages often turn to FHA home loans to make their homeownership dreams come true.
FHA Loans – An Attractive Option for First-time Home Buyers
Many people struggle with getting approved for their first home loan for different reasons. Most of the time, the reason has something to do with their credit history or financial footing. As most first time applicants are newlyweds or fresh university graduates, they’re likely not to have an established credit history.
While some have bad credit and unpaid bills which affect their overall credit score, others have little to no credit history at all because they haven’t signed up for a credit card or taken a loan yet.
Unlike conventional loans, however, FHA mortgage lenders qualify and approve borrowers with less-than-stellar credit ratings and may only require as little as 3.5% down payment. The lower credit and down payment demands already make FHA loan a suitable choice for first-time homebuyers, but these are just two of its several advantages.
Advantages of an FHA Loan
It doesn’t take much to understand why FHA mortgage loans appeal to many buyers. First of all, it’s not so difficult to get approved for a loan. Also, the requirements are more lenient, which makes them more attainable for regular, working-class citizens. The 580 credit score and 3.5% down payment are easier to hit than the 700 and 20% requirement of conventional loans.
On the topic of insurance, the Monthly Insurance Premium for FHA loans is in many ways similar to the Private Mortgage Insurance required by lenders for a conventional loan with less than 20% down. A small portion of the MIP is paid at the loan closing, and the rest is charged monthly. In many cases, the cost of FHA mortgage insurance is still slightly lower than private mortgage insurance for less-creditworthy borrowers.
Qualified first-time homebuyers who want to take out an FHA home loan can also benefit from government and state grants. That means they have to come up with a lesser amount for the down payment and closing costs.
Apply for FHA Loan
Many people look forward to owning their own homes. After all, it is one of the most rewarding milestones in a person’s life. However, the financial burden of making this a reality may be too much for a regular-wage earner to handle.
With its more favorable terms and less stringent requirements, the FHA mortgage loan helps close the gap between dream and reality as far as home ownership goes.