4 Advantages Of FHA Loans
There are several advantages of loans that the FHA (Federal Housing Administration) offers to potential borrowers. Though individuals looking for a home loan should always shop around for the best type of loan that suits their specific needs, there is much to recommend FHA loans to home buyers that may not qualify for more conventional loan terms. Take a look at four of the most notable advantages new home buyers have when taking on an FHA loan.
Taking Care of Closing Costs
Many first time home buyers save for years, but often forget that there are significant costs involved at the point of sale beyond the down payment. Closing costs can be especially expensive, and the terms of traditional loans usually only allow sellers to contribute 3% of the total loan amount to the buyer's closing costs. With an FHA loan, that amount can double if necessary.
Lower Credit Requirements
As of 2015, the minimum credit score needed for home buyers to qualify for an FHA loan is down to 580. Prior to this change, the minimum score necessary was substantially higher, at 640. This doesn't mean that anyone with at least a 580 FICO (Fair Isaac Corporation) score automatically is granted an FHA loan. Lenders are still hesitant to give those with poor credit large loans, but for someone who shows a record of consistently improving credit, getting approved for an FHA loan is far from impossible.
Lower Down Payment Requirements
In addition to lower initial credit requirements, one of the most attractive features of an FHA loan for many first time buyers is the lower down payment requirement. The FHA only requires a down payment of 3.5% for those whose credit scores qualify. If you're looking to buy a home for the first time, but feel defeated in your search by huge down payment requirements, an FHA loan might be the right lending choice for you.
If you're concerned that interest rates will rise in the future and want to lock in a low interest rate on an FHA loan, there's no need to worry. If a seller has an existing FHA loan, a qualified buyer can assume the same loan with interest rates intact. Though buyers in these cases are required to put down significantly more as a down payment, lower interest rates can make up for some of the immediate costs in the long term.
To learn more about FHA loans, contact a company like Western Ohio Mortgage.