Those who are interested in buying a home have likely heard of the FHA loan program. They may have heard good things about it, too. However, they still may wonder if it is something they should pursue. The FHA or Federal Housing Administration has offered mortgage insurance on specific losses since 1934. While the loans are referred to as FHA loans they are actually being provided by the lender and insured by the government. It is possible to get more information about these loans by reading below.
Using an FHA approved lender means there is less risk with the loans because they are backed by the government. This means that a person gets the advantages offered by conventional mortgages and more. Keep reading to learn more about FHA loans and why this may be a viable option.
No Large Down Payment Required with FHA Loans
Traditionally, the down payment required to purchase a home and get a mortgage was 20% of the total purchase price. However, if FHA loans are sought, the down payment may be as low as 3.5%. This is a good option for homebuyers who have limited cash to work with. Just keep in mind that when under 20% is put on a home, government mortgage insurance is a requirement. Usually, it is not cancellable; however, the trade-off of owning a home can be quite beneficial.
FHA Loans Come with Unique Guidelines from Conventional Loans
If someone has tried to get a loan in the past but they were denied because the numbers did not work out, then an FHA loan may be a possibility. These are designed to help encourage homeownership for individuals who may not be able to afford it in other situations. If a person’s FICO credit score disqualified them from any other type of loan, they may discover that the FHA loan provides a bit more leeway. Other factors are considered when deciding if the loan should be approved. Also, if someone has no credit, the FHA will allow a borrower to still get approved with a non-traditional credit history.
The Ability to Use Gift Funds
Another benefit of FHA loan is that they let buyers use gift funds as a part of the down payment. Also, the provisions are not as strict as what is required with conventional loans. If someone got a big sum of money from family members, friends, employers, or someone else, it can be used as a source of funds to make the required down payment. Similar to other loans, though, the FHA loan program has very strict guidelines and requirements. Selecting a lender with years of experience with FHA loans is a good idea.
When it comes to FHA loans, there are several factors that need to be considered. Be sure to keep the tips and information here in mind to make the right decisions regarding the type of loan to apply for when buying a home. As seen from the information here, there are multiple options to keep in mind, and working with professionals can help.