Federal Housing Authority (FHA) Loans are becoming an increasingly popular loan option for millennials and first time home buyers. FHA loans allow borrowers to have imperfect credit and pay a lower down payment thus making mortgage accessible for these homebuyers. Take a look at these 5 benefits of FHA loans.
5 Benefits of FHA Loans
The FHA requirements for credit score are far lower than conventional loans. With FHA loans you can have as low as a 580 credit score, whereas with a conventional loan you must have at least a 620 credit score. Millennials and first time home buyers often aren’t aware of their credit score or haven’t have enough time or resources to build it up when they want to qualify for a mortgage. The lower credit requirement is one the biggest benefits to FHA loans.
Lower Down Payment
The top hurdle for first time home buyers is the down payment. Paying up to 20% of the loan as a down payment seems daunting and even impossible for some. With an FHA loan, you’re able to pay as low as 3.5% down as opposed to the 20% conventional loan amount. The lower down payment requirement is one of the most popular benefits of FHA loans and makes it possible for many home owners to afford a mortgage.
FHA loans allow sellers to pay up to 6 percent of the loan amount to over buyer’s costs as opposed to conventional loans 3%. This is a large benefit of FHA loans since it allows home owners to save their closing costs for additional costs of moving in. Some sellers use closing costs as an incentive so when 6% is able to be paid, it makes a large difference for the home buyer.
FHA Loans are Assumable
FHA loans can be taken over by a new home buyer. This means if you want to sell your home down the road, you can transfer your loan to the person who buys the house from you. This is an advantage especially if the mortgage rate when you bought the home is lower than the current mortgage rate. The new home buyer could save a lot of money by paying a lower mortgage rate every month.
A Chance to Reset
If you are a home buyer with a recent bankruptcy or foreclosure in your history, FHA loans make it easier to get approved. Depending on your lender, two or three years after financial hardship is enough time to reset your mortgage loan eligibility. After this amount of time, you can reapply for a mortgage. For buyers with this history, this is one of the top benefits of FHA loans.
You may also like: Benefits of Conventional Loans.