FHA Loans - The Top 6 Benefits for Would-Be Home Buyers

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate, Shout Outs

The Federal Housing Administration (FHA) was created under the National Housing Act of 1934. It works with HUD (Housing and Urban Development) to help low-income or first-time home buyers get into affordable housing with reasonably priced mortgages and with minimal downpayment. FHA mortgages are also helpful for those with poor credit histories, and can often allow them to buy a home when they can’t get a mortgage through conventional sources.

If an FHA mortgage sounds like a good deal, it is. Here’s what you have to do to qualify for one:

1.  The maximum loan amount you can get depends on the county you live in and whether the home is a single or multiple family dwelling.

2.  FHA loans offer lower down payments than conventional loans. Typically 3.5% of the purchase price of the home is required, while conventional loans ask for 5% to 20% or more. FHA also allows family members to gift the down payment to borrowers, unlike traditional lenders.

3.  FHA loans require an upfront mortgage premium to cover lenders if the borrower defaults on the loan. This is typically financed into the mortgage loan, but doesn’t have to be. The upfront premium for a 30 year mortgage is 1.75%. A monthly premium payment is included in the monthly mortgage amount to cover the cost if the buyer opts to finance the premium into the loan.

4.  One of the biggest advantages of getting an FHA mortgage is the tolerance for past bad credit the agency exhibits. Bankruptcies, foreclosures, collections, late payments and more can all potentially be overlooked if the borrower has a recent history of on-time payments.

5.  The debt-to-income ratio for a loan is pretty good, too. The front-end ratio can’t exceed 29% and the back end can’t exceed 41%. However, a borrower can often go beyond these guidelines if there are compensating factors, such as cash reserves, a larger down payment, or a good history of stable employment.

6.  Finally, FHA mortgages require that certain fees, like the tax service, not be charged to the borrower. They also allow sellers to contribute up to 6% if the borrower’s closing costs, which is well above the 3% allowed on conventional loans.

If you are a first-time home buyer or have not owned a home in over 3 years, an FHA mortgage can be just what you need to get into the home of your dreams at a significantly reduced cost. You can find out about getting an FHA mortgage from most mortgage brokers or from your local HUD office.