Several financing options are available to explore when you want to buy a home. But taking out a home mortgage is one of the options most potential home buyers choose. When you want to take out a loan to buy a home, there are several available options to explore, like conventional home mortgages, FHA loans, and more. Though there are several benefits to choosing any home mortgage program from a reputable lender, you may want to consider other alternatives like federally backed loans such as FHA loans.
About FHA Loans
An FHA loan is a type of loan issued by the relevant federal government authority. The Federal Housing Authority is the government body responsible for overseeing FHA loans. These loans essentially demand some of the qualifications other home mortgage programs require from the borrower. Like most other home mortgage programs, the amount you get as an FHA loan will be determined by your employment status, income, and credit history, among other qualifications. So what are the benefits of an FHA loan over other home mortgage programs?
The 5 Benefits of an FHA Home Loan
Both conventional and FHA loans can provide low down payments to borrowers. But the benefits of taking out an FHA loan far surpass those of other home loans. Below are several benefits of an FHA loan to help you determine if this kind of mortgage is right for your situation.
Lower Credit Score Requirements
The credit score requirements for FHA loans are far lower than what traditional loans demand. With conventional home mortgages, a credit score of 620 is the minimum requirement. Some individual banks can even require a credit score that is even better than that. But you can secure an FHA loan with a credit score far below that requirement. With a credit score of at least 580, you can qualify for this type of loan. FHA loans are a good choice since they are an initiative of the federal government and demand lower credit score requirements.
Lower Down Payment Requirements
FHA loans have long been the go-to choice for most borrowers with lower cash amounts for down payments. FHA loans give borrowers a chance to buy a home with a down payment of at least 3.5% of the buying price. A down payment of at least 20% of the purchasing price is the standard requirement for traditional loans.
Lower Mortgage Rates
FHA mortgage rates are typically lower. With a credit score of 650, you can qualify for a similar interest rate as a conventional borrower with a credit score of 730. The lower rates of FHA loans are because the lenders never use risk-based pricing arrangements as the other mortgage lenders do. Even with a poor credit history, you cannot get penalized with higher interest rates when you choose FHA loans over other home mortgages.
Several Loan Program Options to Choose From
The FHA provides a variety of loan programs including, FHA streamline refinance, FHA 203(k) mortgage, and more. When you choose these loans from any region, such as FHA loans Cincinnati over traditional mortgages in Ohio, you get several loan programs with lenient qualification requirements to explore.
Closing Costs Benefit
FHA loans give home sellers a chance to pay up to six percent of the amount disbursed as a loan to the buyer to cover closing costs. That can be a big boost to many first-time homebuyers. Most first-time homebuyers can save a considerable amount of cash for down payments. But they are left with nothing on their accounts after making a down payment. That is why FHA loans allow home sellers to contribute more money to closing costs to save buyers from financial distress.
The Bottom Line
FHA loan programs are good at supporting low- and moderate-income buyers, especially those with limited amounts of money saved for down payments. With FHA loans, the lender, seller, or home builder can pay some of the closing costs on behalf of the buyer.