A low down payment and less strict credit requirements make FHA loans an accessible option.
There’s plenty to like about government-backed FHA loans, which can be an ideal option for borrowers of all kinds. FHA loans can make homeownership accessible for those who have little cash saved up for a down payment or have imperfect credit history.
Because of these benefits, FHA loans are particularly popular among first-time homebuyers. In this blog, we’ll discuss the numerous benefits of FHA loans, and why this mortgage type could be a good fit for you.
What is an FHA Loan?
An FHA loan is a mortgage that’s insured by the Federal Housing Administration. Because the loan is backed by the FHA, the lender is protected against loss should the borrower default on the loan.
FHA loans were originally designed back in the 1930s to make homeownership more accessible and affordable to first-time buyers with less-than-perfect credit or past credit issues.
Today, however, the FHA loan program is available to all kinds of borrowers, even those looking to refinance their current loan.
The FHA loan program is available to all kinds of borrowers, even those looking to refinance their current loan.
What are the benefits of an FHA mortgage loan?
There are plenty of great benefits to consider when researching the FHA loan. Of course, all mortgages have characteristics that may be advantageous and disadvantageous depending on your specific situation.
It’s best to speak with a mortgage loan originator about which option best suits you. Here are some of the benefits that commonly appeal to home buyers when it comes to FHA:
Qualification
FHA loans can be easier to qualify for. The requirements for an FHA loan are generally more lenient than conventional loans or other loan types when it comes to credit, income, and down payment requirements.
Low down payment
With FHA loans, you don’t need a large down payment to become a homeowner. You could put down as little as 3.5% for a fixed-rate FHA loan if your FICO score is high enough.
Credit score
To qualify for the low down payment of 3.5%, you need to meet a minimum FICO score specified by your lender. This score can vary from lender to lender, but FHA score requirements are generally lower than the requirements of other loans, including conventional.
If your credit score is lower than the minimum score, you may still be eligible for an FHA loan, but your down payment may increase to 10%.
Housing options
You can use an FHA loan on several property types, including a single-family home, a multifamily home with up to four units, a condo, or a manufactured home.
However, you can only use an FHA loan to buy a home you plan to live in as a primary residence. To finance a vacation home or investment property, you’ll need to consider another type of loan.
The option to refinance to eliminate mortgage insurance
Keep in mind that you are required to pay monthly mortgage insurance premiums on an FHA loan. However, even if you start with an FHA loan, it is possible to refinance to another loan type down the line. If you have a high enough FICO score, your lender can help you switch from an FHA loan to a conventional loan.
If you switch to a conventional mortgage with less than 20% equity, you will be required to pay mortgage insurance, but that will stop once you reach 22% equity. If you switch to a conventional loan after reaching 20% equity, you will not need to pay mortgage insurance.
What is an FHA loan, And How Can I Qualify?
What’s the next step?
An FHA loan can be a great choice for a borrower who is a new home buyer, needs a low down payment option, or has spotty credit history.
Now that you’re all caught up on the benefits and features of FHA loans, where do you turn next?
A loan originator can help you compare each loan option available, according to your financial situation. At Cardinal Financial, our loan experts embrace your unique situation and engineer solutions with the goal to deliver a personalized, professional lending experience.
Reach out to our team today, and we’ll provide you with informative answers to your questions.
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