Course 3 – Unit 3: FHA Loans: The Benefits of an FHA Loan

The Benefits Of An FHA Mortgage

There are a number of reasons why, after 80-plus years, the FHA mortgage program remains the most popular low-downpayment loan on the market. Here are just a few of them.

FHA mortgage rates are often “below-market”

FHA mortgage rates are typically below the rates for a comparable conventional 30-year fixed-rate mortgage. And, for loans with down payments of 10% of less, and for borrowers with less-than-perfect, this gap can be even wider.

It is not uncommon for first-time home buyers, whose credit scores are often lower-than- average,to get an FHA mortgage rate quote more than (1.00%) below a comparable conventional rate.

FHA loans allow 3.5% down payment

FHA loans allow for a down payment of 3.5 percent for buyers with even below-average credit scores. No other mortgage program even comes close.

FHA loans allow below-average credit scores

The FHA will insure loans for borrowers with credit scores of 580 or higher. Most other conventional loan programs enforce a minimum credit score requirement of 620. For many home buyers, therefore, especially ones at the lower end of the credit scoring spectrum, the FHA is the best and cleanest path to homeownership.

The FHA forgives your “bad credit” history

In keeping with its mission to promote homeownership nationwide, the FHA takes a different approach toward bankruptcy, foreclosure, and short sales as compared to other mortgage lending agencies. Traditionally, a home buyer with a recent bankruptcy, foreclosure, or recorded short sale would have to wait as many as 7 years before a lender would approve a new home loan application. The FHA’s minimum wait time is just 12 months.

FHA loans have no “special rules” for qualification

Unlike other low- and no-down payment mortgage programs, there are no special qualifications required to use an FHA home loan. For example, the 100% VA loan requires borrowers to be members of the military; and, the 100% USDA loan requires home buyers to live in less-dense neighborhoods while staying with certain income thresholds. Even the conventional HomeReady™ mortgage, which allows 3% down, places restrictions based on household income or census tract. The FHA requires no such verification. You can use FHA mortgages regardless of where you live, what you do, and what you earn. FHA loans are for everyone.

The FHA mortgage program offers a built-in home construction loan 

The FHA recognizes that not all homes are move-in ready. So, to help home buyers who plan to update appliances, replace flooring, replace a roof, paint rooms, and the like, the agency makes available the FHA 203k loan. The 203k loan is named after the section in the FHA rule guide which describes the rules of the program. Using the 203k, home buyers can purchase a home and finance the home improvements into their mortgage. This means that home repairs don’t have to be paid using your cash. They can be paid using your mortgage instead. Your mortgage lender can explain more about how the 203k program works.