If you’re interested in buying a home, you will have several options available to you in terms of a loan. FHA loans have gained in popularity over the years because of their low down payments and more forgiving requirements. FHA loans are funded by the Federal Housing Administration, and they are a great option for first-time homebuyers who may not have a lot of money to put down.
Who Qualifies for an FHA Loan?
To qualify for an FHA loan, you will need to have a reasonable debt-to-income ratio, with some programs accepting up to 55 percent debt. You don’t need to have an outstanding credit score either, just a decent one. Where some conventional loan programs require credit scores of over 750, FHA loans will consider people with scores of 650.
There are also some benefits for first-time homebuyers. FHA loans allow for co-signers, which is great for new graduates. You can also use gift money to put toward the down payment, and sellers can contribute to the closing costs, paying up to 6 percent of the purchase price.
What are the Benefits of an FHA Loan?
FHA loans are not for everyone, but they certainly have their benefits. Consider the following:
Low down payment of 3.5 percent
Low closing costs
Easy credit qualifying
Gifts and co-signers allowed
No prepayment penalty
More leniency during hard times
Funding for home improvements/renovations
Is There Anything Else I Should Know?
FHA loans include mortgage insurance, which is added into your monthly payment. This ongoing insurance can cost more than private mortgage insurance with conventional loans. There have been changes made regarding this insurance, which can fluctuate at any time. If you do have good credit and strong income, you can get other offers that are competitive and may not require you to put down a large down payment.
The loan you choose is an important decision, so take your time. You may find that an FHA loan is perfect for your situation, especially if you’re credit score is subpar or you have little money to put down.