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FHA Loans and more

Why should you go for FHA loans-Everything you need to know!

If you are considering your options for the home loans, FHA loan is a pretty attractive option to look at. There are several reasons for the homebuyers to explore an FHA home loan option. For the first time homebuyers, it definitely is worth exploring the FHA loan since it’s much easier to qualify for.
Here, we are going to discuss everything you need to know about the FHA loans and why it is a wise idea to explore them.

Understanding the concept of FHA loan

An FHA loan is, essentially, a mortgage that’s insured by the Federal Housing Administration (FHA). For the first time home buyers, FHA loans are especially very attractive as they allow down payments of only 3.5% for credit scores of 580 and above. However, to protect the lender’s interests in case of payment default, borrowers with FHA loans pay for monthly mortgage insurance

Why are FHA loans popular?


FHA loans are getting very popular these days due to various benefits they offer to the borrowers. Some of them are discussed below-

Lower down-payment requirements (as low as 3.5%

Less rigorous lending standards

Insured/ backed by the Federal Housing Administration

Another reason for the popularity of the FHA loans is the fact that under FHA loan, the seller is allowed to pay up to 6% of the closing costs as against the conventional loans where the seller is generally restricted to paying only 2% of the closing costs

Eligibility of the FHA loans

Relaxed credit standards as compared to other loan instruments, is one of the main reasons a large number of borrowers are exploring the option of FHA loans. The eligibility criteria for the FHA loans work as below-

  • If the borrower is looking to get a mortgage with a down payment as low as 3.5 percent, the credit score of 580 or higher is needed
  • At least 10 percent of down payment is needed by the borrowers with credit scores between 500 and 579 to apply for FHA loans
  • Anyone with a credit score below 500 is generally ineligible for FHA loans

Since the minimum down payment requirement for the FHA loan is just 3.5%, borrowers can use their own savings to make this payment. However, they are allowed other sources as well to make the down payment such as of a grant from a state or local government down-payment assistance program or a gift from a family member

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Benefits of the FHA loans

For someone with a not-so-good credit history, it is a great relief to know that that is still eligible for home loans under FHA program. FHA approval requirements are generally much less stringent as compared to the conventional loans. For e.g.: the minimum credit point requirement for FHA loan eligibility is only 500 points. Furthermore, if the borrowers’ credit score is 580 or above they are eligible for maximum financing at just 3.5% down payment

  • Advantage of less challenging credit standards

For someone with a not-so-good credit history, it is a great relief to know that that is still eligible for home loans under FHA program. FHA approval requirements are generally much less stringent as compared to the conventional loans. For e.g.:  the minimum credit point requirement for FHA loan eligibility is only 500 points. Furthermore, if the borrowers’ credit score is 580 or above they are eligible for maximum financing at just 3.5% down payment

Since the minimum down payment requirement for the FHA loan is just 3.5%, borrowers can use their own savings to make this payment. However, they are allowed other sources as well to make the down payment such as of a grant from a state or local government down-payment assistance program or a gift from a family member

  • Better interest rate

In the conventional loan applications, one of the major factors taken into account by the lenders is the credit history. Both the loan amount eligibility and the interest rates charged are heavily dependent on the same. However, in case of the FHA loans, interest rates are the same irrespective of credit and in most cases highly competitive.

  • Low down payment

Unlike the conventional mortgages that often require down payments anywhere between 5-10% of the purchase price of the home, FHA loans are available at a much lower down payment (as low as 3.5%)

  • Low Mortgage Insurance

Generally, the monthly mortgage insurance fee paid on an FHA loan is much lower as compared to the one paid on the conventional mortgage options. As a result, the overall monthly payment is much lower in case of the FHA loans

  • High Debt Ratios

Low debt to income ratio is one of the important criteria in case of the conventional loans. However, in case of FHA loans, one can qualify with a higher total monthly debt as against the income.

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important when considering a mortgage

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