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Do you want to buy a home but don’t think you’ll qualify for a loan? Don’t sell yourself short just yet.
There are still options out there to help you get the loan you need. For example, FHA home loans are specifically set up to help first-time buyers and lower-income individuals buy homes.
Read on to learn all about the benefits of FHA home loans and see if they’re the right option for you.
What are FHA Home Loans?
FHA home loans are issued by private lenders and then insured by the Federal Housing Administration. This means that, if you fail to repay your loan, the FHA reimburses the lender for you.
Because of the guarantee from the federal government, lenders are able to give buyers loans with substantial benefits since they trust that they’ll get their money back.
What are The Benefits?
FHA loans come with a ton of benefits for people who might not qualify for loans from traditional lenders. Some of those perks include:
1. Smaller Down Payments
If you don’t have a ton of money to put toward a house right now, an FHA home loan may be the best option for you.
The FHA allows homeowners to put down a minimum of 3.5 percent of the home’s purchase price.
Of course, there are some cons that come with buying a home with a small down payment. For example, there is a lack of immediate equity in the home, and you may have to pay higher interest rates.
But, if you simply don’t have the money for a higher down payment, the smaller payment that comes with an FHA home loan can be a lifesaver.
2. Lower Credit Score Requirements
FHA home loans are also ideal for buyers who don’t have great credit scores.
Most FHA lenders will grant loans to buyers who have a score of 620 or higher. But, in some cases, buyers with a score as low as 580 can obtain a home loan.
Keep in mind that your credit score will still affect your interest rate, even with an FHA loan. Because of this, it’s in your best interest to try and bolster it as much as you can before applying for any kind of loan.
That being said, it’s still nice to know you won’t be ruled out just because you have a less-than-ideal score.
3. Buyers Can Receive Gift Money
FHA loans also allow buyers to receive gift money. This means you can receive funds from an approved source to put toward closing costs and the down payment on your home.
Approved sources include:
- Close friends
- Charitable organizations
Of course, there are still guidelines in place for using gift money to buy a house, so it’s important to talk to your lender before taking this approach.
4. No Prepayment Penalties
Sometimes, lenders actually penalize buyers who try to pay off their mortgage early. This isn’t the case for FHA home loans.
Your circumstance can always change. You might get a raise or a substantial bonus. If you find yourself in a position in which you can pay off your mortgage sooner than you planned, the FHA won’t hold that against you.
You’ll also get the added perk of paying less interest!
5. Flexible Debt-To-Income Requirements
When you apply for a home loan, the lender will review your ratio of debt to income (DTI).
FHA loans come with more flexible DTI requirements than traditional loans. many lenders do not allow a buyer’s DTI to exceed 40 percent.
Usually, the FHA allows the DTI to be at 43 percent or lower. In some cases, though, lenders will allow buyers with ratios of 50 percent or higher to obtain a loan.
If your DTI is above 50 percent, you may need to have a larger amount of money saved before you can receive a loan.
6. Seller Concessions are Allowed
FHA home loans also allow seller concessions. This means that a seller can contribute a portion of the home’s purchase price to the buyer’s closing costs and other pre-paid items.
FHA lenders allow contributions of up to 6 percent of the purchase price.
This is a major bonus for buyers who don’t have a lot of money available to cover some of the extra costs that come with the purchase, such as the down payment or real estate taxes.
7. FHA Home Loans are Assumable
Finally, another significant benefit is the fact that FHA loans are assumable.
This means that another buyer can take over your FHA loan and benefit from your lower interest costs in the event that rates have changed since you bought the home.
Assumable loans don’t just benefit buyers. Sellers also can profit by charging more for the home or requiring the purchaser to pay closing costs or other fees associated with the sale.
Choosing an FHA Lender
Okay, you’re convinced that FHA home loans come with a lot of perks for buyers.
But, when it comes to applying for a loan, it’s important to take your time and choose the right lender. Don’t just work with the first person who pops up in your Google search results.
When looking for the best FHA lender, keep these tips in mind:
- Know the type of loan you’re looking for (refinance, conventional, fixed-rate, adjustable-rate, etc.)
- Look for a lender that specializes in online mortgages if that’s important to you
- Ask about lower down payments and alternative credit score checks
- If this is your first time buying a house, find a lender that specializes in helping first-time buyers
Make sure you’re asking the right questions to help you find the right lender.
Apply for a Loan Today
Do you think an FHA home loan is right for you?
If you’re ready to become a homeowner, consider working with us at Metropolitan Mortgage Corporation. We’re a locally owned and operated company dedicated to serving the people of Missouri and Kansas with honesty and integrity.
Apply for a loan online today and you’ll get a free, personalized rate quote within minutes. We can’t wait to help you buy your dream home.